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Losing sheen: Quarter full of one-offs…
Bank of Baroda’s (BoB) strong core business performance was marred by
deteriorating asset quality and higher provision for retirement benefits.
BoB reported strong business growth of 28% YoY (domestic CASA
protected at 34.4%), NII growth of 50% YoY and NIM of 3.45% in Q4FY11.
However, the impact of a 56% YoY jump in opex and 100% jump in
provisions was subdued due to one-off addition of interest on income tax
refund (| 253 crore) and lower tax provisions (benefit of ~| 50 crore) due
to the tax refund. NII, adjusted for this one-off, was in line with our
estimate at | 2361 crore (35% jump YoY). For FY11, NII grew 48% YoY
boosting PAT by 39% YoY to | 4242 crore. We are cautious on the asset
quality front as its impeccable track record of asset quality has been
affected by GNPA increasing 31% YoY to | 3153 crore. We expect CAGR
of 21% in the business mix to boost PAT at 23% CAGR over FY11-13E.
๔ Stumbling on consistent asset quality record…
Even though both the GNPA and NNPA ratios were maintained YoY
at 1.36% and 0.35%, the GNPA quantum rose 31% YoY (14% QoQ)
to | 3153 crore emanating across sectors. PCR was maintained QoQ
at 75% (excl. tech w/offs). We are cautious on the asset quality front
as the bank was least expected to succumb to asset quality
pressure. We expect GNPA of 1.4% and NNPA of 0.4% by FY13E.
๔ Provision for retirement benefits takes its toll…
The total second pension option liability has been ascertained at |
2384 crore. Out of this, a one-off of | 554 crore (full provision) has
been made for retired employees and provision of | 366 crore for
existing employees. Transitional liability of | 180 crore was provided
for in FY11. Going forward, the burden will subside as it needs to
provide | 366 crore and | 180 crore (transitional liability) in FY12E
and | 366 crore for the next three years (FY13E-15E).
Valuation
Even though BoB reported a strong core business performance and
healthy RoA and RoE of 1.3% and 21.5% in FY11, its best in class asset
quality has come under pressure. The premium the bank used to get as
compared to peers like Bank of India and PNB for its asset quality has
contracted. Moreover, its NIM is likely to be under pressure in H1FY12E
due to rising cost of deposits. Hence, we value the bank at 1.4x FY13E
ABV and arrive at a target price of | 970.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Losing sheen: Quarter full of one-offs…
Bank of Baroda’s (BoB) strong core business performance was marred by
deteriorating asset quality and higher provision for retirement benefits.
BoB reported strong business growth of 28% YoY (domestic CASA
protected at 34.4%), NII growth of 50% YoY and NIM of 3.45% in Q4FY11.
However, the impact of a 56% YoY jump in opex and 100% jump in
provisions was subdued due to one-off addition of interest on income tax
refund (| 253 crore) and lower tax provisions (benefit of ~| 50 crore) due
to the tax refund. NII, adjusted for this one-off, was in line with our
estimate at | 2361 crore (35% jump YoY). For FY11, NII grew 48% YoY
boosting PAT by 39% YoY to | 4242 crore. We are cautious on the asset
quality front as its impeccable track record of asset quality has been
affected by GNPA increasing 31% YoY to | 3153 crore. We expect CAGR
of 21% in the business mix to boost PAT at 23% CAGR over FY11-13E.
๔ Stumbling on consistent asset quality record…
Even though both the GNPA and NNPA ratios were maintained YoY
at 1.36% and 0.35%, the GNPA quantum rose 31% YoY (14% QoQ)
to | 3153 crore emanating across sectors. PCR was maintained QoQ
at 75% (excl. tech w/offs). We are cautious on the asset quality front
as the bank was least expected to succumb to asset quality
pressure. We expect GNPA of 1.4% and NNPA of 0.4% by FY13E.
๔ Provision for retirement benefits takes its toll…
The total second pension option liability has been ascertained at |
2384 crore. Out of this, a one-off of | 554 crore (full provision) has
been made for retired employees and provision of | 366 crore for
existing employees. Transitional liability of | 180 crore was provided
for in FY11. Going forward, the burden will subside as it needs to
provide | 366 crore and | 180 crore (transitional liability) in FY12E
and | 366 crore for the next three years (FY13E-15E).
Valuation
Even though BoB reported a strong core business performance and
healthy RoA and RoE of 1.3% and 21.5% in FY11, its best in class asset
quality has come under pressure. The premium the bank used to get as
compared to peers like Bank of India and PNB for its asset quality has
contracted. Moreover, its NIM is likely to be under pressure in H1FY12E
due to rising cost of deposits. Hence, we value the bank at 1.4x FY13E
ABV and arrive at a target price of | 970.
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