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Bank of Baroda
F4Q11: Mixed Trends
Quick Comment – BOB reported profit of Rs12.9bn
for QE Mar-11: Profit was up 21% QoQ and 57% YoY
and compares with our estimate of Rs10.3bn. The
headline beat was driven by a lower effective tax rate,
interest on IT refund, and higher non-interest income.
This was offset by higher loan loss provisions and
employee expenses (due to second pension option).
The key highlights from the results include:
1) Adjusted global NIM moved lower by 8bp QoQ to
~3.12%; domestic NIM moved lower by 12bp QoQ to
3.7%. Adjusted NII grew by 3% QoQ and 35% YoY.
2) Volume growth was strong. Loans grew 10% QoQ
and 31% YoY. Deposits grew 8% QoQ and 27% YoY.
Domestic CASA moved 75bp lower QoQ to 34.4%
3) Core non-interest income progression was strong at
34% QoQ and 20% YoY, driven by seasonal factors and
an uptick in the volatile FX segment.
4) BOB made provisions for a second pension option on
retired employees and for existing employees to the
tune of Rs5-5.5bn in the quarter – driving up headline
opex growth to 34% QoQ and 56% YoY.
5) New NPL slippages and credit costs picked up
sequentially to Rs6.7bn (1.3% of loans, annual) and
Rs4.2bn (0.8%). Coverage (including technical
write-offs) was stable at 85%.
Price Target Discussion
We arrive at our price target of Rs1,085 using a probability
weighted, three-phase residual income model – a five-year
high growth period, a 10-year maturity period, followed by a
declining period. We assign a 20% weighting to our bear case,
20% weighting to our bull case and the remaining 60% to our
base case.
We use a cost of equity of 13.5%, assuming a beta of 1.0, a
risk-free rate of 8% (current Indian 10-year government bond
yield), and a market risk premium of 5.5%.
Risks to Our Price Target
Key downside risks to our price target include slower-thanexpected
loan growth, sharp compression in NIMs and
significant deterioration in asset quality (restructured loans
slippages).
Upside risks include: fee income being stronger than
expectations and credit costs being lower than expectations
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda
F4Q11: Mixed Trends
Quick Comment – BOB reported profit of Rs12.9bn
for QE Mar-11: Profit was up 21% QoQ and 57% YoY
and compares with our estimate of Rs10.3bn. The
headline beat was driven by a lower effective tax rate,
interest on IT refund, and higher non-interest income.
This was offset by higher loan loss provisions and
employee expenses (due to second pension option).
The key highlights from the results include:
1) Adjusted global NIM moved lower by 8bp QoQ to
~3.12%; domestic NIM moved lower by 12bp QoQ to
3.7%. Adjusted NII grew by 3% QoQ and 35% YoY.
2) Volume growth was strong. Loans grew 10% QoQ
and 31% YoY. Deposits grew 8% QoQ and 27% YoY.
Domestic CASA moved 75bp lower QoQ to 34.4%
3) Core non-interest income progression was strong at
34% QoQ and 20% YoY, driven by seasonal factors and
an uptick in the volatile FX segment.
4) BOB made provisions for a second pension option on
retired employees and for existing employees to the
tune of Rs5-5.5bn in the quarter – driving up headline
opex growth to 34% QoQ and 56% YoY.
5) New NPL slippages and credit costs picked up
sequentially to Rs6.7bn (1.3% of loans, annual) and
Rs4.2bn (0.8%). Coverage (including technical
write-offs) was stable at 85%.
Price Target Discussion
We arrive at our price target of Rs1,085 using a probability
weighted, three-phase residual income model – a five-year
high growth period, a 10-year maturity period, followed by a
declining period. We assign a 20% weighting to our bear case,
20% weighting to our bull case and the remaining 60% to our
base case.
We use a cost of equity of 13.5%, assuming a beta of 1.0, a
risk-free rate of 8% (current Indian 10-year government bond
yield), and a market risk premium of 5.5%.
Risks to Our Price Target
Key downside risks to our price target include slower-thanexpected
loan growth, sharp compression in NIMs and
significant deterioration in asset quality (restructured loans
slippages).
Upside risks include: fee income being stronger than
expectations and credit costs being lower than expectations
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