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Bank of Baroda
Superior asset quality: BOB’s asset quality has held up relatively better than peers
and credit charges have been significantly lower over last 4-5 qtrs. Positive asset
quality surprise has led to the premium valuations for BOB and thus we factor in
~60bps of credit costs for BOB in FY12-13, ~20-30bps lower than credit charges for
peers but this increases the downside risk in case of any tick up in slippages as
market expectations of asset quality is high.
Capital infusion - EPS/ROE dilutive: The capital infusion by the government to
increase stake to 58% would be EPS and ROE dilutive. We have assumed a Rs33bn
dilution at Rs900/share (based on SEBI formula) and this would impact BOB's
earnings by ~7% and ROEs by 200bps.
Maintain Overweight but premium valuations contingent on asset quality: We
revise FY12-13E earnings down by 10-11% as we factor in lower margin, marginally
higher credit costs and factor in Rs33bn capital infusion by the government. We thus
revise down our Mar-12 PT to Rs1050/share (Sep-11 PT of Rs1150/share earlier)
based on 2 stage Gordon growth model implying 1.5x FY13 book.
BOB has outperformed peers over last 6mnts due to better asset quality but premium
valuations to the sector is contingent upon asset quality continuing to remain stable.
We believe market is factoring in relatively lower credit costs for BOB and higher
than expected slippages is a key risk to our recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda
Superior asset quality: BOB’s asset quality has held up relatively better than peers
and credit charges have been significantly lower over last 4-5 qtrs. Positive asset
quality surprise has led to the premium valuations for BOB and thus we factor in
~60bps of credit costs for BOB in FY12-13, ~20-30bps lower than credit charges for
peers but this increases the downside risk in case of any tick up in slippages as
market expectations of asset quality is high.
Capital infusion - EPS/ROE dilutive: The capital infusion by the government to
increase stake to 58% would be EPS and ROE dilutive. We have assumed a Rs33bn
dilution at Rs900/share (based on SEBI formula) and this would impact BOB's
earnings by ~7% and ROEs by 200bps.
Maintain Overweight but premium valuations contingent on asset quality: We
revise FY12-13E earnings down by 10-11% as we factor in lower margin, marginally
higher credit costs and factor in Rs33bn capital infusion by the government. We thus
revise down our Mar-12 PT to Rs1050/share (Sep-11 PT of Rs1150/share earlier)
based on 2 stage Gordon growth model implying 1.5x FY13 book.
BOB has outperformed peers over last 6mnts due to better asset quality but premium
valuations to the sector is contingent upon asset quality continuing to remain stable.
We believe market is factoring in relatively lower credit costs for BOB and higher
than expected slippages is a key risk to our recommendation.
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