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Bank of Baroda (BOB)
Banks/Financial Institutions
Few one-offs; core performance remains strong. BoB delivered yet another strong
quarter, especially on core performance, though reported PAT was driven by few oneoffs.
A lower tax provision and interest on tax refund was used for making higher
pension provisions and an ad hoc floating provision. Margins trends are strong and loan
growth impressive. Management focus remains on delivering consistent growth,
sustaining RoAs at 1.3% and RoEs at 20-22%. Stock trades at 1.6X FY2012E PBR. We
retain BUY with TP of `1,250 (from `1,200) as we roll over to FY2013E
Several one-offs impacts results though core performance remains healthy
We maintain our BUY rating on BoB with a target price of `1,250. Earnings for the quarter were
impacted by several one-offs. (1) Income tax refund of ` 2.5 bn, (2) lower tax provision at 5% tax
rate as the bank benefitted from earlier excess provisions of previous quarters and refunds, (3)
staff expenses increased sharply as the bank made higher provisions of `5.5 bn for retired
employees who have opted for second pension option and ammortisation for existing employees,
and (4) ad hoc floating provisions of `3 bn to improve coverage ratio. Despite all these one-offs,
core performance continues to remain strong. Adjusted margins declined only 10 bps qoq, loan
growth trends are healthy and slippages trend continues to remain lower than industry average.
We largely maintain our earnings post 4Q earnings. We build in about 20 bps margin contraction
in FY2012E over FY2011E levels. Stock trades at 1.6X book and 8X FY2012E EPS. Retain BUY with
a target of `1,250 (from `1,200 earlier). Our higher TP is due to roll over to FY2013E.
Business momentum maintained with loan growth at over 30% yoy
Loan growth for the bank has been impressive at over 30% yoy (10% qoq). BoB is clearly
accelerating the pace of growth with near-term confidence emerging from a lower loan
delinquency profile witnessed in the past two years. Domestic loans grew by 29% yoy while
international loans grew by 37% yoy. Sequentially, growth has been balanced across retail, SME
and international. Overall deposits grew by 27% yoy to `3.1 tn with domestic deposits growing by
26% yoy to `2.3tn. CASA in the domestic business declined marginally by 75 bps qoq to 34.4% in
4QFY11 (CASA deposits growth of 21% yoy. CD ratio is stable and comfortable at 75% compared
to 74% in December 2010.
Adjusted margins (domestic) decline 10 bps qoq to 3.7%
Reported margins improved by 25 bps to 3.5% qoq, adjusted margins were down by at
least 10 bps, broadly inline with estimates. A one-time interest on tax refund of `2.5 bn
resulted in better NII performance for the quarter. Net interest income grew by 50% yoy to
`26.1 bn (adjusted NII grew by 36% yoy). Domestic margins were at 3.7% (reported
margins higher at 4.2%) while international margins were flat at 1.4%. While the
management is targeting for a flat margin performance in FY2012E, we build a decline of
20 bps to factor the sharp rise in deposit rates and limited headroom to increase lending
rates.
Fee income volatility continues with better performance in the current quarter
Non interest income was flat yoy due to lower treasury gains and recovery from bad loans
but fee income performance was better-than-expected. Volatility in core fee income
continued with current quarter showing an impressive performance of 21% yoy growth to
`4.3 bn compared to `3.2 bn reported in December 2010. We are building fee income to
grow by 15% CAGR for FY2011-13. Treasury gains were higher than the previous quarter at
`1.2 bn (down 42% yoy). Income from recoveries declined 27% yoy to `859 mn.
Slippages higher than previous quarter but comfortable at 1.2% levels
Gross NPL were higher by 14% qoq to `32 bn while net NPL increased by 6% qoq to `7.9
bn. Fresh slippages were at `6 bn (1.2% of loans) compared to `2.8 bn (0.6% of loans) in
December 2010. There has been limited impact on the transition to system based NPLs
recognition- an exercise completed in FY2011. The bank continues to target delinquency at
1.25% levels in FY2012. Provision coverage ratio stands comfortable at 85% (75%
excluding write-off). Retail NPL ratio has declined to 1.8% from 2.1% in the September
2010 while there has been an increase in outstanding NPLs in the SME portfolio. Near-term
outlook on the banks’ asset quality continues remain favorable especially given the
improvement in the macro environment. We are building slippages at 1.4% in FY2012E for
the bank and loan loss provisions at 0.5%.
Restructured assets higher than the previous quarter; total slippages at 12%
Restructured loans stood `67 bn as of December 2010, up by `7 bn from September 2010
and mainly from the wholesale loans. Overall restructured assets are 2.9% (facility wise) of
loan book. Out of the total restructured book, about `8.2 bn of loans (`10 mn and above
forming 12% of restructured loans) slipped into the NPL category during the past eight
quarters.
Crystallized liability on pension higher than previous quarter by `320 mn
The bank’s final liability for pension has been estimated at `23.4 bn, revised upwards by
`320 mn as against a liability estimated in the previous quarter of `20.6 bn. Of this `554 mn
(23% of total liability) was for retired employees and the balance of `18.3 bn was for
current employees (`366 mn has been amortized in the current year and the balance would
be done across the next four years). With nearly 22,400 employees participating in this
program, this liability comes to about `0.94 mn/employee. The higher charge for retired
employees has resulted in sharp increase in cost-income ratio.
Other highlights for the quarter
The bank has made a provision of `346 mn for investment depreciation
Post the capital infusion by GoI, capital adequacy ratios stands comfortable with overall
CAR at 14.5% and Tier-1 capital at 9.9%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda (BOB)
Banks/Financial Institutions
Few one-offs; core performance remains strong. BoB delivered yet another strong
quarter, especially on core performance, though reported PAT was driven by few oneoffs.
A lower tax provision and interest on tax refund was used for making higher
pension provisions and an ad hoc floating provision. Margins trends are strong and loan
growth impressive. Management focus remains on delivering consistent growth,
sustaining RoAs at 1.3% and RoEs at 20-22%. Stock trades at 1.6X FY2012E PBR. We
retain BUY with TP of `1,250 (from `1,200) as we roll over to FY2013E
Several one-offs impacts results though core performance remains healthy
We maintain our BUY rating on BoB with a target price of `1,250. Earnings for the quarter were
impacted by several one-offs. (1) Income tax refund of ` 2.5 bn, (2) lower tax provision at 5% tax
rate as the bank benefitted from earlier excess provisions of previous quarters and refunds, (3)
staff expenses increased sharply as the bank made higher provisions of `5.5 bn for retired
employees who have opted for second pension option and ammortisation for existing employees,
and (4) ad hoc floating provisions of `3 bn to improve coverage ratio. Despite all these one-offs,
core performance continues to remain strong. Adjusted margins declined only 10 bps qoq, loan
growth trends are healthy and slippages trend continues to remain lower than industry average.
We largely maintain our earnings post 4Q earnings. We build in about 20 bps margin contraction
in FY2012E over FY2011E levels. Stock trades at 1.6X book and 8X FY2012E EPS. Retain BUY with
a target of `1,250 (from `1,200 earlier). Our higher TP is due to roll over to FY2013E.
Business momentum maintained with loan growth at over 30% yoy
Loan growth for the bank has been impressive at over 30% yoy (10% qoq). BoB is clearly
accelerating the pace of growth with near-term confidence emerging from a lower loan
delinquency profile witnessed in the past two years. Domestic loans grew by 29% yoy while
international loans grew by 37% yoy. Sequentially, growth has been balanced across retail, SME
and international. Overall deposits grew by 27% yoy to `3.1 tn with domestic deposits growing by
26% yoy to `2.3tn. CASA in the domestic business declined marginally by 75 bps qoq to 34.4% in
4QFY11 (CASA deposits growth of 21% yoy. CD ratio is stable and comfortable at 75% compared
to 74% in December 2010.
Adjusted margins (domestic) decline 10 bps qoq to 3.7%
Reported margins improved by 25 bps to 3.5% qoq, adjusted margins were down by at
least 10 bps, broadly inline with estimates. A one-time interest on tax refund of `2.5 bn
resulted in better NII performance for the quarter. Net interest income grew by 50% yoy to
`26.1 bn (adjusted NII grew by 36% yoy). Domestic margins were at 3.7% (reported
margins higher at 4.2%) while international margins were flat at 1.4%. While the
management is targeting for a flat margin performance in FY2012E, we build a decline of
20 bps to factor the sharp rise in deposit rates and limited headroom to increase lending
rates.
Fee income volatility continues with better performance in the current quarter
Non interest income was flat yoy due to lower treasury gains and recovery from bad loans
but fee income performance was better-than-expected. Volatility in core fee income
continued with current quarter showing an impressive performance of 21% yoy growth to
`4.3 bn compared to `3.2 bn reported in December 2010. We are building fee income to
grow by 15% CAGR for FY2011-13. Treasury gains were higher than the previous quarter at
`1.2 bn (down 42% yoy). Income from recoveries declined 27% yoy to `859 mn.
Slippages higher than previous quarter but comfortable at 1.2% levels
Gross NPL were higher by 14% qoq to `32 bn while net NPL increased by 6% qoq to `7.9
bn. Fresh slippages were at `6 bn (1.2% of loans) compared to `2.8 bn (0.6% of loans) in
December 2010. There has been limited impact on the transition to system based NPLs
recognition- an exercise completed in FY2011. The bank continues to target delinquency at
1.25% levels in FY2012. Provision coverage ratio stands comfortable at 85% (75%
excluding write-off). Retail NPL ratio has declined to 1.8% from 2.1% in the September
2010 while there has been an increase in outstanding NPLs in the SME portfolio. Near-term
outlook on the banks’ asset quality continues remain favorable especially given the
improvement in the macro environment. We are building slippages at 1.4% in FY2012E for
the bank and loan loss provisions at 0.5%.
Restructured assets higher than the previous quarter; total slippages at 12%
Restructured loans stood `67 bn as of December 2010, up by `7 bn from September 2010
and mainly from the wholesale loans. Overall restructured assets are 2.9% (facility wise) of
loan book. Out of the total restructured book, about `8.2 bn of loans (`10 mn and above
forming 12% of restructured loans) slipped into the NPL category during the past eight
quarters.
Crystallized liability on pension higher than previous quarter by `320 mn
The bank’s final liability for pension has been estimated at `23.4 bn, revised upwards by
`320 mn as against a liability estimated in the previous quarter of `20.6 bn. Of this `554 mn
(23% of total liability) was for retired employees and the balance of `18.3 bn was for
current employees (`366 mn has been amortized in the current year and the balance would
be done across the next four years). With nearly 22,400 employees participating in this
program, this liability comes to about `0.94 mn/employee. The higher charge for retired
employees has resulted in sharp increase in cost-income ratio.
Other highlights for the quarter
The bank has made a provision of `346 mn for investment depreciation
Post the capital infusion by GoI, capital adequacy ratios stands comfortable with overall
CAR at 14.5% and Tier-1 capital at 9.9%
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