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Better than peers
BOB’s 1QFY12 profit of Rs10.3bn (up 20% YoY) was above our estimate.
While loan growth of 25% YoY continues to be above sector, we are more
encouraged by higher than peer CASA growth of 17% YoY. Margins are
expected to see marginal deterioration from here. Asset quality trends
were better than peers with delinquency ratio of 1.2% being among the
lowest. Unlike other PSU banks, BOB had already moved NPLs to systembased
recognition hence it did not face those pressures in 1Q. We believe
that BOB’s better liability and asset franchise coupled with superior
profitability deserve premium valuations. Maintain BUY.
Better than peers on loan and CASA growth
BOB continues to gain market share in loans with loan growth of 25% YoY vs.
21% for the sector. More importantly, its CASA growth of 17% YoY has been
higher than most PSU banks and this should help to deliver profitable growth.
Margins contracted by 58bps QoQ due to rise in cost of deposits and absence
of interest of income on tax refund. Management sees limited downside risk
to margins from current levels.
Asset quality manageable, but fall in coverage ratio disappointed
A stable loan growth and focus on asset quality has enabled BOB to maintain
lower slippage ratio. During 1QFY12, delinquency ratio of 1.2% of past year’s
loans was much lower than peers and largely inline with our estimates.
Management indicated that slippages were well spread across sectors.
Moreover unlike other PSU banks, BOB did not have NPLs arising from the
transition to system-based NPL recognition as all its loans are already on that
platform. We were a tad disappointed by the ~500bps QoQ fall in coverage
ratio, but BOB’s coverage ratio of 70% is still higher than most PSU banks
and will provide cushion to earnings. While NPL provisions were down 52%
YoY, MTM losses pushed-up total provisioning by 61% YoY.
Maintain BUY
We believe that a well capitalised balance sheet (tier I CAR of 9.1% without
profit of 1Q) and healthy growth in CASA deposits will support loan growth of
24% Cagr over FY11-14 and profit growth of 17% Cagr. Higher than peer
profitability (ROA 1.2% and ROE 21%), stronger CASA franchise, better asset
quality and manageable exposure to infrastructure sector (12% of fund based
exposure) will help to sustain premium valuations. We maintain BOB as our
top pick in the PSU bank space with a target price of Rs1,100 based on 1.6x
FY13 adjusted price to book.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Better than peers
BOB’s 1QFY12 profit of Rs10.3bn (up 20% YoY) was above our estimate.
While loan growth of 25% YoY continues to be above sector, we are more
encouraged by higher than peer CASA growth of 17% YoY. Margins are
expected to see marginal deterioration from here. Asset quality trends
were better than peers with delinquency ratio of 1.2% being among the
lowest. Unlike other PSU banks, BOB had already moved NPLs to systembased
recognition hence it did not face those pressures in 1Q. We believe
that BOB’s better liability and asset franchise coupled with superior
profitability deserve premium valuations. Maintain BUY.
Better than peers on loan and CASA growth
BOB continues to gain market share in loans with loan growth of 25% YoY vs.
21% for the sector. More importantly, its CASA growth of 17% YoY has been
higher than most PSU banks and this should help to deliver profitable growth.
Margins contracted by 58bps QoQ due to rise in cost of deposits and absence
of interest of income on tax refund. Management sees limited downside risk
to margins from current levels.
Asset quality manageable, but fall in coverage ratio disappointed
A stable loan growth and focus on asset quality has enabled BOB to maintain
lower slippage ratio. During 1QFY12, delinquency ratio of 1.2% of past year’s
loans was much lower than peers and largely inline with our estimates.
Management indicated that slippages were well spread across sectors.
Moreover unlike other PSU banks, BOB did not have NPLs arising from the
transition to system-based NPL recognition as all its loans are already on that
platform. We were a tad disappointed by the ~500bps QoQ fall in coverage
ratio, but BOB’s coverage ratio of 70% is still higher than most PSU banks
and will provide cushion to earnings. While NPL provisions were down 52%
YoY, MTM losses pushed-up total provisioning by 61% YoY.
Maintain BUY
We believe that a well capitalised balance sheet (tier I CAR of 9.1% without
profit of 1Q) and healthy growth in CASA deposits will support loan growth of
24% Cagr over FY11-14 and profit growth of 17% Cagr. Higher than peer
profitability (ROA 1.2% and ROE 21%), stronger CASA franchise, better asset
quality and manageable exposure to infrastructure sector (12% of fund based
exposure) will help to sustain premium valuations. We maintain BOB as our
top pick in the PSU bank space with a target price of Rs1,100 based on 1.6x
FY13 adjusted price to book.
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