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Bank of Baroda
▼ Neutral
Previous: Overweight
BOB.BO, BOB IN
Earnings growth to slow; downgrade to Neutral
Downgrade to Neutral: Headline 4Q PAT was higher than expected,
adjusted for one-offs, but an increase in slippages in 4Q FY11 highlights
asset quality risks relative to expectations of pristine asset quality. We
downgrade BOB to Neutral as we believe the major improvement in
ROA is done and earnings growth will sharply decelerate and could
disappoint, going forward.
• Strong growth but margins moderated: Loan growth of 10.4% q/q
surprised (JPMe - 5% q/q growth) with strong growth across large
corporate, SME and retail. Margin contraction was marginally higher
than expected with adjusted domestic margins contracting by ~13bp q/q
in 4Q11. We expect margin contraction to continue into FY12 as the full
impact of deposit repricing gets reflected.
• 4Q highlights risks from higher slippages: Gross NPAs increased by
~14% in 4Q11 with gross slippages of ~1.2% in this quarter vs 60bp in
2Q/3Q11. Though slippages were within management guidance, we
believe the street will be negatively surprised by the increase in
slippages, given the higher expectations on BOB’s asset quality.
• 4Q11 positives: BOB used one-off gains from IT refundd and low taxes
to increase floating provisions by Rs3.0B in 4Q11 and also provided for
retired employees’ pension liability without any P&L impact. We expect
very modest opex growth in FY12.
• Downgrade to Neutral with PT trimmed to Rs1,000: We raise our
earnings estimates by 1-2% but trim our Gordon growth based Mar-12
PT to Rs1000 (from Rs1050). We downgrade the stock to Neutral from
OW. We believe return ratios have peaked and EPS is starting to slow
down from weak ROAs and equity dilution. A key upside risk to our PT
is that the 4Q slippage turns out to be a one-off trend and a key downside
risk is that tight liquidity continues to weaken margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda
▼ Neutral
Previous: Overweight
BOB.BO, BOB IN
Earnings growth to slow; downgrade to Neutral
Downgrade to Neutral: Headline 4Q PAT was higher than expected,
adjusted for one-offs, but an increase in slippages in 4Q FY11 highlights
asset quality risks relative to expectations of pristine asset quality. We
downgrade BOB to Neutral as we believe the major improvement in
ROA is done and earnings growth will sharply decelerate and could
disappoint, going forward.
• Strong growth but margins moderated: Loan growth of 10.4% q/q
surprised (JPMe - 5% q/q growth) with strong growth across large
corporate, SME and retail. Margin contraction was marginally higher
than expected with adjusted domestic margins contracting by ~13bp q/q
in 4Q11. We expect margin contraction to continue into FY12 as the full
impact of deposit repricing gets reflected.
• 4Q highlights risks from higher slippages: Gross NPAs increased by
~14% in 4Q11 with gross slippages of ~1.2% in this quarter vs 60bp in
2Q/3Q11. Though slippages were within management guidance, we
believe the street will be negatively surprised by the increase in
slippages, given the higher expectations on BOB’s asset quality.
• 4Q11 positives: BOB used one-off gains from IT refundd and low taxes
to increase floating provisions by Rs3.0B in 4Q11 and also provided for
retired employees’ pension liability without any P&L impact. We expect
very modest opex growth in FY12.
• Downgrade to Neutral with PT trimmed to Rs1,000: We raise our
earnings estimates by 1-2% but trim our Gordon growth based Mar-12
PT to Rs1000 (from Rs1050). We downgrade the stock to Neutral from
OW. We believe return ratios have peaked and EPS is starting to slow
down from weak ROAs and equity dilution. A key upside risk to our PT
is that the 4Q slippage turns out to be a one-off trend and a key downside
risk is that tight liquidity continues to weaken margins.
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