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Asset quality will be key
BOB’s 4QFY11 net profit of Rs12.9bn (up 43% YoY) surprised positively.
The operating performance was strong on most parameters (loan growth,
CASA growth and NIMs) and one-off items were marginally accretive. Key
disappointment was sharp rise in NPL formation. We raise earning
estimates for FY12-13 by 11-12% on the back of lower tax rate, higher
loan growth and lower staff costs. BOB is amongst the most profitable
and expensive PSU banks, and future asset quality trends will be critical
to its premium valuations. Maintain O-PF with target price of 1,100 based
on 1.6x FY13 adjusted PB.
Strong core earnings growth; one-off items marginally accretive
BOB’s net profit growth of 43% YoY surprised positively and was driven by
strong growth in operating income (core NII up 35% YoY, fees up 20%). The
results also had 3 key one-time/ year-end adjustments that were marginally
(~5%) accretive. While interest on tax refund (Rs2.5bn) and lower than
expected tax rate (impact of ~Rs3bn) contributed positively, it was offset by
~Rs5bn on write-off on 2nd pension liability for retired employees.
Healthy CASA growth; margins to be under pressure
BOB has been gaining market share in loans (loan growth of 31% vs 21% for
sector) supported by improvement in deposit franchise. Healthy CASA growth
(23% YoY) and widening of yields helped to contain compression in domestic
NIMs to 12bps QoQ (core NIMs at 3.7%). We believe that NIMs would remain
under pressure of rise in deposit costs due to (1) rise in term deposit rates
and (2) shift of CASA to term deposits- BOB is more vulnerable to this trend
among PSU banks due to higher share of customers in developed states.
Asset quality disappointed
During 4QFY11, BOB witnessed sharp rise in slippages and the delinquency
ratio rose to 1.5% (from ~0.8% in last two quarters); as a result, the gross
NPA rose by 14% QoQ (31% YoY). Even restructured loans grew 11% QoQ.
Over past few quarters, BoB’s fresh slippages were lower versus peers, and
hence this rise in slippages / restructured loans came in as a disappointment.
The management is confident on maintaining robust asset quality and we
believe this will be the key for BOB to maintain its premium valuations.
Raise earnings; Maintain O-PF
We raise earning estimates for FY12-13 by 11-12% on back of cut in tax rate
from 32% to 27% (see note below) along with positive impact from higher
credit growth (with capital infusion, Tier I CAR is now at 9.9%) and lower
staff cost. Maintain O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asset quality will be key
BOB’s 4QFY11 net profit of Rs12.9bn (up 43% YoY) surprised positively.
The operating performance was strong on most parameters (loan growth,
CASA growth and NIMs) and one-off items were marginally accretive. Key
disappointment was sharp rise in NPL formation. We raise earning
estimates for FY12-13 by 11-12% on the back of lower tax rate, higher
loan growth and lower staff costs. BOB is amongst the most profitable
and expensive PSU banks, and future asset quality trends will be critical
to its premium valuations. Maintain O-PF with target price of 1,100 based
on 1.6x FY13 adjusted PB.
Strong core earnings growth; one-off items marginally accretive
BOB’s net profit growth of 43% YoY surprised positively and was driven by
strong growth in operating income (core NII up 35% YoY, fees up 20%). The
results also had 3 key one-time/ year-end adjustments that were marginally
(~5%) accretive. While interest on tax refund (Rs2.5bn) and lower than
expected tax rate (impact of ~Rs3bn) contributed positively, it was offset by
~Rs5bn on write-off on 2nd pension liability for retired employees.
Healthy CASA growth; margins to be under pressure
BOB has been gaining market share in loans (loan growth of 31% vs 21% for
sector) supported by improvement in deposit franchise. Healthy CASA growth
(23% YoY) and widening of yields helped to contain compression in domestic
NIMs to 12bps QoQ (core NIMs at 3.7%). We believe that NIMs would remain
under pressure of rise in deposit costs due to (1) rise in term deposit rates
and (2) shift of CASA to term deposits- BOB is more vulnerable to this trend
among PSU banks due to higher share of customers in developed states.
Asset quality disappointed
During 4QFY11, BOB witnessed sharp rise in slippages and the delinquency
ratio rose to 1.5% (from ~0.8% in last two quarters); as a result, the gross
NPA rose by 14% QoQ (31% YoY). Even restructured loans grew 11% QoQ.
Over past few quarters, BoB’s fresh slippages were lower versus peers, and
hence this rise in slippages / restructured loans came in as a disappointment.
The management is confident on maintaining robust asset quality and we
believe this will be the key for BOB to maintain its premium valuations.
Raise earnings; Maintain O-PF
We raise earning estimates for FY12-13 by 11-12% on back of cut in tax rate
from 32% to 27% (see note below) along with positive impact from higher
credit growth (with capital infusion, Tier I CAR is now at 9.9%) and lower
staff cost. Maintain O-PF.
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