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Bank of Baroda Overweight
BOB.BO, BOB IN
Strong 3Q: Asset quality continues to remain better than peers, Maintain Overweight
• 3Q11-Better than expectations: BOB reported net profit of Rs10.9bn up
28% y/y which was ~10% higher than our and street expectations. Margins
surprised on the upside, opex growth remained low in spite of pension
provisioning and asset quality remained stable when peers have seen higher
slippages continuing. We maintain Overweight and believe that the
consistent asset quality trend should help sustain premium valuations in the
near term.
• Strong NII growth, expect some moderation: NII grew by 43% q/q with
20bps improvement in margins sequentially and 33% credit growth.
International margin has improved to 1.4% which is among the highest
among large PSU banks. NII growth is expected to moderate given some
pressure from rising rates and moderation in loan growth.
• Opex growth low including pension liabilities: BOB's 2nd pension
liability at Rs20bn is lower than peers with BOB providing Rs1.8bn in 3Q.
Opex growth for BOB for 9M11 was lower at 10% v/s peers given lower
pension and gratuity liabilities and this along with lower credit costs have
aided stronger net profit growth.
• Asset quality continues to remain strong: Gross and Net NPAs were flat
sequentially with gross slippages remaining <1.0% v/s ~2.0% slippages for
peers. Credit costs were also low at 40bps. Though we think it will be very
difficult to maintain credit costs at current levels, asset quality has held up
significantly better than peers and we think this should help sustain
premium valuations in the near term.
• Maintain Overweight, Dilution risks remain: We revise earnings up
~10% for FY11 factoring in lower pension liabilities and higher margins.
Current valuation at 1.45x FY12 book is at a premium to peers but we think
asset quality consistency will help to sustain valuations. Management did not
have any clarity on government's announced capital infusion but that
remains a risk given our estimated 8-9% earnings dilution due to Rs35bn
infusion.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda Overweight
BOB.BO, BOB IN
Strong 3Q: Asset quality continues to remain better than peers, Maintain Overweight
• 3Q11-Better than expectations: BOB reported net profit of Rs10.9bn up
28% y/y which was ~10% higher than our and street expectations. Margins
surprised on the upside, opex growth remained low in spite of pension
provisioning and asset quality remained stable when peers have seen higher
slippages continuing. We maintain Overweight and believe that the
consistent asset quality trend should help sustain premium valuations in the
near term.
• Strong NII growth, expect some moderation: NII grew by 43% q/q with
20bps improvement in margins sequentially and 33% credit growth.
International margin has improved to 1.4% which is among the highest
among large PSU banks. NII growth is expected to moderate given some
pressure from rising rates and moderation in loan growth.
• Opex growth low including pension liabilities: BOB's 2nd pension
liability at Rs20bn is lower than peers with BOB providing Rs1.8bn in 3Q.
Opex growth for BOB for 9M11 was lower at 10% v/s peers given lower
pension and gratuity liabilities and this along with lower credit costs have
aided stronger net profit growth.
• Asset quality continues to remain strong: Gross and Net NPAs were flat
sequentially with gross slippages remaining <1.0% v/s ~2.0% slippages for
peers. Credit costs were also low at 40bps. Though we think it will be very
difficult to maintain credit costs at current levels, asset quality has held up
significantly better than peers and we think this should help sustain
premium valuations in the near term.
• Maintain Overweight, Dilution risks remain: We revise earnings up
~10% for FY11 factoring in lower pension liabilities and higher margins.
Current valuation at 1.45x FY12 book is at a premium to peers but we think
asset quality consistency will help to sustain valuations. Management did not
have any clarity on government's announced capital infusion but that
remains a risk given our estimated 8-9% earnings dilution due to Rs35bn
infusion.
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