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BANK OF BARODA (BOB)
PRICE: RS.892 RECOMMENDATION: BUY
TARGET PRICE: RS.1230
FY12E P/E: 7.1X; P/B: 1.5X
Concern of capital constraints recedes with this capital infusion; slightly tweaking the numbers and reiterate BUY.
q BoB to get Rs.24.6 bn (27.28 mn shares @Rs.902) from GOI; concern of
capital constraints recedes with this capital infusion and would enhance
GOI stake to 57.0% (earlier 53.8%) post this preferential allotment.
q Equity dilution at ~7.5%; similarly RoE is likely to compress by ~110 bps
to ~21.9% during FY12E. However, it is likely to enhance tier-I capital by
~125 bps, addressing the concern of capital constraints. The enhanced
GOI stake (~57% post allotment) provides leeway for further capital issuance from the capital market in the future without depending on theGOI.
q We are slightly tweaking the numbers for FY11E as well as FY12E and reiterate BUY on BOB with TP of Rs.1230 based on 2.0x its FY12E ABV. The
stock has been a re-rating candidate with sustained high quality of earnings over past few years. Hence, BoB remains one of our preferred picks
in the banking sector space.
GOI to infuse Rs.24.61 bn through preferential route; GOI's stake
likely to rise to 57%
BoB would get Rs.24.6 bn (27.28 mn shares @Rs.902) from GOI through preferential
route which is likely to enhance GOI stake to 57.0% (earlier 53.8%) post this preferential allotment. This would lead to ~7.5% equity dilution whereas RoE would
come down by ~110 bps to ~21.9% during FY12E.
This capital infusion addresses the concern of capital constraints (tier-I was at 7.7%
at the end of Q3FY11) in both short term as well as long term. Its tier-I capital is
likely to go up by ~125 bps post allotment besides providing leeway for further capital issuance from the capital market in the future without depending on the GOI.
Superior asset quality; lower incremental delinquencies in last
few quarters are positive for the stock
One of the positive facets of BoB has been its asset quality. Both gross as well as net
NPAs are at comfortable levels - 1.32% and 0.36%, respectively, at the end of
Q3FY11. It is consistent with the trends witnessed in last 9-10 quarters. In absolute
terms, gross & net NPAs remained flat (QoQ) - growth of 1.9% and 1.8%, respectively
Its incremental slippage during last two quarters (Q2FY11 & Q3FY11) was one of the
best in the industry (came at only ~0.65% as against the average run rate of 1.14%
during last 6 quarters)
It provision coverage ratio (PCR) stands at 85.5% (including technical write-off) at
the end of Q3FY11, a way ahead of regulatory requirement of 70%. Rs.6.14 bn
asset was restructured during Q3FY11 taking cumulative restructured book to
Rs.60.5 bn (~2.9% of advances), which remains lower than the industry average.
Business growth has been strong; 35%+ CASA ratio positive during rising rate environment
Its loan book has grown at 30.4% CAGR during FY04-10, faster than the system
leading to improvement in its market share. During Q3FY11, advances grew at
32.7% YoY (7.4% QoQ) on back of strong growth in overseas and retail book. Foreign book now constitutes ~27% of total loan book.
At the end of Q3FY11, its total deposits rose 30.9% YoY (4.4% QoQ) to Rs.2815.1
bn. This strong growth has come on the back of strong traction in both domestic as
well as overseas market which rose 29.6% and 35.1%, respectively
Bank has been able to maintain the share of domestic CASA mix at 35-36% of total
deposits in last couple of quarters. We believe this has helped them in managing the
cost of funds.
Strong liability franchise - helping in sustaining margin
BoB has maintained a healthy CASA mix (domestic) in last couple of quarters. The
strong traction in CASA deposits over a period of time has helped in containing the
cost of funds.
Bank has well managed its liability franchise, visible from decline in cost of deposits
from 4.69% during Q3FY10 to 4.53% during Q3FY11.This has come on back of
decline in both domestic as well as overseas cost of deposits - domestic cost of deposits came down from 5.36% in Q3FY10 to 5.27% in Q3FY11; overseas cost of
deposits declined from 2.24% to 1.94%, during the same period. However, domestic yields on advances improved from 10.21% during Q3FY10 to 10.34% during
Q3FY11.
Both domestic as well global NIM improved YoY & QoQ. Domestic NIM improved
from 3.40% in Q3FY10 and 3.62% in Q2FY11 to 3.82% in Q3FY11. Similarly, global
NIM improved from 2.95% in Q3FY10 and 3.02% in Q2FY11 to 3.20% in Q3FY11.
Leveraging overseas operations; lower NIM is more than compensated by lower opex as well as sturdy asset quality.
During 9MFY11, BoB's overseas operations contributed 24.8% in total business and
16.7% in total gross profit. Overseas operations also contributed to the robust
growth in core fee based income (32.1% to total fee-based income).
Having lower Cost / Income ratio (19.3% in 9MFY11) as compared to 41.1% in
domestic operations, contribution to operating profit is even higher.
On asset quality front also, its overseas operations perform better. Its gross NPA
stands at only 0.55% as compared to 1.60% for domestic operations at the end of
Q3FY11.
Sustained high quality of earnings warrant premium valuation;
reiterate BUY with TP of Rs.1230
BoB has delivered earnings CAGR of 34.8% during FY05-10, in the league of few
large private sector banks. Its return profile has also on the improvement trajectory
(RoA: 1.2% & RoE: 22.2% during FY10) and likely to be at healthy levels (RoA:
~1.3%, RoE: ~22% during FY12E) post this preferential allotment.
At the current market price of Rs.892, the stock is trading at 7.1x its FY12E earnings
and 1.5x its FY12E ABV. We are slightly tweaking the numbers for FY11E as well as
FY12E and now expect net profit for FY11E and FY12E to be Rs.40.11 bn and
Rs.49.43 bn.
This would result into an EPS of Rs.102.1 and Rs.125.8 for FY11E and FY12E, respectively. Adjusted book value for FY11E and FY12E is estimated to be Rs.492.5 and
Rs.612.3, respectively
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BANK OF BARODA (BOB)
PRICE: RS.892 RECOMMENDATION: BUY
TARGET PRICE: RS.1230
FY12E P/E: 7.1X; P/B: 1.5X
Concern of capital constraints recedes with this capital infusion; slightly tweaking the numbers and reiterate BUY.
q BoB to get Rs.24.6 bn (27.28 mn shares @Rs.902) from GOI; concern of
capital constraints recedes with this capital infusion and would enhance
GOI stake to 57.0% (earlier 53.8%) post this preferential allotment.
q Equity dilution at ~7.5%; similarly RoE is likely to compress by ~110 bps
to ~21.9% during FY12E. However, it is likely to enhance tier-I capital by
~125 bps, addressing the concern of capital constraints. The enhanced
GOI stake (~57% post allotment) provides leeway for further capital issuance from the capital market in the future without depending on theGOI.
q We are slightly tweaking the numbers for FY11E as well as FY12E and reiterate BUY on BOB with TP of Rs.1230 based on 2.0x its FY12E ABV. The
stock has been a re-rating candidate with sustained high quality of earnings over past few years. Hence, BoB remains one of our preferred picks
in the banking sector space.
GOI to infuse Rs.24.61 bn through preferential route; GOI's stake
likely to rise to 57%
BoB would get Rs.24.6 bn (27.28 mn shares @Rs.902) from GOI through preferential
route which is likely to enhance GOI stake to 57.0% (earlier 53.8%) post this preferential allotment. This would lead to ~7.5% equity dilution whereas RoE would
come down by ~110 bps to ~21.9% during FY12E.
This capital infusion addresses the concern of capital constraints (tier-I was at 7.7%
at the end of Q3FY11) in both short term as well as long term. Its tier-I capital is
likely to go up by ~125 bps post allotment besides providing leeway for further capital issuance from the capital market in the future without depending on the GOI.
Superior asset quality; lower incremental delinquencies in last
few quarters are positive for the stock
One of the positive facets of BoB has been its asset quality. Both gross as well as net
NPAs are at comfortable levels - 1.32% and 0.36%, respectively, at the end of
Q3FY11. It is consistent with the trends witnessed in last 9-10 quarters. In absolute
terms, gross & net NPAs remained flat (QoQ) - growth of 1.9% and 1.8%, respectively
Its incremental slippage during last two quarters (Q2FY11 & Q3FY11) was one of the
best in the industry (came at only ~0.65% as against the average run rate of 1.14%
during last 6 quarters)
It provision coverage ratio (PCR) stands at 85.5% (including technical write-off) at
the end of Q3FY11, a way ahead of regulatory requirement of 70%. Rs.6.14 bn
asset was restructured during Q3FY11 taking cumulative restructured book to
Rs.60.5 bn (~2.9% of advances), which remains lower than the industry average.
Business growth has been strong; 35%+ CASA ratio positive during rising rate environment
Its loan book has grown at 30.4% CAGR during FY04-10, faster than the system
leading to improvement in its market share. During Q3FY11, advances grew at
32.7% YoY (7.4% QoQ) on back of strong growth in overseas and retail book. Foreign book now constitutes ~27% of total loan book.
At the end of Q3FY11, its total deposits rose 30.9% YoY (4.4% QoQ) to Rs.2815.1
bn. This strong growth has come on the back of strong traction in both domestic as
well as overseas market which rose 29.6% and 35.1%, respectively
Bank has been able to maintain the share of domestic CASA mix at 35-36% of total
deposits in last couple of quarters. We believe this has helped them in managing the
cost of funds.
Strong liability franchise - helping in sustaining margin
BoB has maintained a healthy CASA mix (domestic) in last couple of quarters. The
strong traction in CASA deposits over a period of time has helped in containing the
cost of funds.
Bank has well managed its liability franchise, visible from decline in cost of deposits
from 4.69% during Q3FY10 to 4.53% during Q3FY11.This has come on back of
decline in both domestic as well as overseas cost of deposits - domestic cost of deposits came down from 5.36% in Q3FY10 to 5.27% in Q3FY11; overseas cost of
deposits declined from 2.24% to 1.94%, during the same period. However, domestic yields on advances improved from 10.21% during Q3FY10 to 10.34% during
Q3FY11.
Both domestic as well global NIM improved YoY & QoQ. Domestic NIM improved
from 3.40% in Q3FY10 and 3.62% in Q2FY11 to 3.82% in Q3FY11. Similarly, global
NIM improved from 2.95% in Q3FY10 and 3.02% in Q2FY11 to 3.20% in Q3FY11.
Leveraging overseas operations; lower NIM is more than compensated by lower opex as well as sturdy asset quality.
During 9MFY11, BoB's overseas operations contributed 24.8% in total business and
16.7% in total gross profit. Overseas operations also contributed to the robust
growth in core fee based income (32.1% to total fee-based income).
Having lower Cost / Income ratio (19.3% in 9MFY11) as compared to 41.1% in
domestic operations, contribution to operating profit is even higher.
On asset quality front also, its overseas operations perform better. Its gross NPA
stands at only 0.55% as compared to 1.60% for domestic operations at the end of
Q3FY11.
Sustained high quality of earnings warrant premium valuation;
reiterate BUY with TP of Rs.1230
BoB has delivered earnings CAGR of 34.8% during FY05-10, in the league of few
large private sector banks. Its return profile has also on the improvement trajectory
(RoA: 1.2% & RoE: 22.2% during FY10) and likely to be at healthy levels (RoA:
~1.3%, RoE: ~22% during FY12E) post this preferential allotment.
At the current market price of Rs.892, the stock is trading at 7.1x its FY12E earnings
and 1.5x its FY12E ABV. We are slightly tweaking the numbers for FY11E as well as
FY12E and now expect net profit for FY11E and FY12E to be Rs.40.11 bn and
Rs.49.43 bn.
This would result into an EPS of Rs.102.1 and Rs.125.8 for FY11E and FY12E, respectively. Adjusted book value for FY11E and FY12E is estimated to be Rs.492.5 and
Rs.612.3, respectively
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