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BANK OF BARODA (BOB)
PRICE: RS.762 RECOMMENDATION: BUY
TARGET PRICE: RS.1050 FY12E P/E: 6.4X; P/B: 1.3X
Rising macro-headwinds and concerns like high exposure to stressed sectors
like infrastructure sector, SMEs, Textiles and commercial real estate (CRE)
etc. have led to the stock’s underperformance in recent months; recent
correction provides good opportunity to enter into this stock, as all these
negatives are already in the price, in our view. Reiterate BUY on the stock.
q Asset quality remains at comfortable levels - gross NPA and net NPA
stood at 1.46% and 0.44%, respectively. Slippage came at ~1.0% (annualized)
during Q1FY12, lower than the last quarter (1.52% during Q4FY11)
but came higher than the average run rate of ~0.65% witnessed during
Q2FY11 & Q3FY11. However, it has continued to outperform its peers in
this category also.
q Higher exposure to stressed sectors like Infrastructure, SMEs, Textiles &
Commercial Real Estate etc have been an overhang on the stock, in recent
months; however, lower restructured book reduces the risk of negative
surprises in the future.
q Moderation is visible in business growth; we are modeling slower loan
growth (19%) as well as deposit growth (18%) for FY12, on back of rising
macro-headwinds.
q We are modeling lower loan growth as well as higher slippage for FY12.
We have slightly tweaked the earnings estimate for FY12E and maintaining
BUY rating on the stock with the revised target price of Rs.1050
(Rs.1170 earlier) based on 1.8x its FY12E adjusted book value.
Asset quality remains at comfortable levels; slippage at ~1.0%
(annualized number) during Q1FY12, came better than its peers.
At the end of Q1FY12, its gross NPA and net NPA stood at 1.46% and 0.44%, respectively.
In absolute terms, both net NPA and gross NPA rose 29.5% (QoQ) and
8.7% (QoQ), respectively. However, they are still at comfortable levels. Even its coverage
ratio stands at 82.5% (including technical write-off) at the end of Q1FY12,
way ahead of regulatory requirement.
Slippage came at ~1.0% (annualized) during Q1FY12, lower than the last quarter
(1.52% during Q4FY11) but came higher than the average run rate of ~0.65% witnessed
during Q2FY11 & Q3FY11. However, it has continued to outperform its peers
in this category also.
Higher exposure to stressed sectors like Infrastructure, SMEs,
Textiles & Commercial Real Estate etc have been an overhang on
the stock, in recent months; however, lower restructured book
reduces the risk of negative surprises in the future.
Banks having higher exposure to stressed sectors like Infrastructure, SMEs, Textiles,
and Commercial Real Estate etc have been beaten down badly, in recent months.
BoB also falls in the same category, whose exposure is also on the higher side.
During FY11, BoB’s Infrastructure exposure rose by 42.0% mainly driven by strong
growth in Power (84.5%), roads (61.9%) and ports (63.5%), despite 11.3% decline
in telecom segment. Power sector is facing rough weather due to numerous problems
like lack of adequate fuel supply, difficulty in acquiring land/obtaining environmental
clearances, weak financial health of the state electricity boards or high interest
burden impacting the projects' equity returns.
However, BoB is better placed vis-à-vis its peers in terms of restructured loans. At the
end of Q1FY12, its total cumulative restructured book stood at Rs.71.7 bn (~3.1% of
advances). The recent increase (Rs.4.55 bn during Q1FY12; QoQ growth of 6.8%)
was slightly on the higher side.
We believe the risk of higher slippage from restructured book as well as stressed
segments have increased given weakening macroeconomic conditions. We are factoring
in higher slippage during FY12 (1.25% vs. 1.08% witnessed during FY11).
Moderation is visible in business growth; we are further reducing
the growth assumption on back of recent rate hikes by the central
bank
Moderation is visible in business growth. Total business grew 23.9% YoY during
Q1FY12, below the ~30% growth witnessed during last four quarters. Although loan
growth came at 25.2% YoY, deposit growth was more moderate and came at
22.9%. Within deposits, CASA deposit growth was only 16.1%, which led to 132
bps YoY decline in CASA mix (45 bps decline QoQ).
Bank has been maintaining domestic CASA mix at 34-35% of total deposits in last
couple of quarters, which have helped them in sustaining domestic NIM at ~3.4%
levels.
We are modeling reduced loan growth (19%) as well as deposit growth (18%) for
FY12, on back of rising macro-headwinds.
Valuation & recommendation
At the current market price of Rs.762, the stock is trading at 6.4x its FY12E earnings
and 1.3x its FY12E ABV. We are modeling lower loan growth as well as higher slippage
for FY12.
We have slightly tweaked the earnings estimate for FY12E and now expect net
profit for FY12E to be Rs.46.6 bn. This would result into an EPS of Rs.119.0 and
adjusted book value of Rs.578.8, respectively.
We are maintaining BUY rating on the stock with the revised target price of Rs.1050
(Rs.1170 earlier) based on 1.8x its FY12E adjusted book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BANK OF BARODA (BOB)
PRICE: RS.762 RECOMMENDATION: BUY
TARGET PRICE: RS.1050 FY12E P/E: 6.4X; P/B: 1.3X
Rising macro-headwinds and concerns like high exposure to stressed sectors
like infrastructure sector, SMEs, Textiles and commercial real estate (CRE)
etc. have led to the stock’s underperformance in recent months; recent
correction provides good opportunity to enter into this stock, as all these
negatives are already in the price, in our view. Reiterate BUY on the stock.
q Asset quality remains at comfortable levels - gross NPA and net NPA
stood at 1.46% and 0.44%, respectively. Slippage came at ~1.0% (annualized)
during Q1FY12, lower than the last quarter (1.52% during Q4FY11)
but came higher than the average run rate of ~0.65% witnessed during
Q2FY11 & Q3FY11. However, it has continued to outperform its peers in
this category also.
q Higher exposure to stressed sectors like Infrastructure, SMEs, Textiles &
Commercial Real Estate etc have been an overhang on the stock, in recent
months; however, lower restructured book reduces the risk of negative
surprises in the future.
q Moderation is visible in business growth; we are modeling slower loan
growth (19%) as well as deposit growth (18%) for FY12, on back of rising
macro-headwinds.
q We are modeling lower loan growth as well as higher slippage for FY12.
We have slightly tweaked the earnings estimate for FY12E and maintaining
BUY rating on the stock with the revised target price of Rs.1050
(Rs.1170 earlier) based on 1.8x its FY12E adjusted book value.
Asset quality remains at comfortable levels; slippage at ~1.0%
(annualized number) during Q1FY12, came better than its peers.
At the end of Q1FY12, its gross NPA and net NPA stood at 1.46% and 0.44%, respectively.
In absolute terms, both net NPA and gross NPA rose 29.5% (QoQ) and
8.7% (QoQ), respectively. However, they are still at comfortable levels. Even its coverage
ratio stands at 82.5% (including technical write-off) at the end of Q1FY12,
way ahead of regulatory requirement.
Slippage came at ~1.0% (annualized) during Q1FY12, lower than the last quarter
(1.52% during Q4FY11) but came higher than the average run rate of ~0.65% witnessed
during Q2FY11 & Q3FY11. However, it has continued to outperform its peers
in this category also.
Higher exposure to stressed sectors like Infrastructure, SMEs,
Textiles & Commercial Real Estate etc have been an overhang on
the stock, in recent months; however, lower restructured book
reduces the risk of negative surprises in the future.
Banks having higher exposure to stressed sectors like Infrastructure, SMEs, Textiles,
and Commercial Real Estate etc have been beaten down badly, in recent months.
BoB also falls in the same category, whose exposure is also on the higher side.
During FY11, BoB’s Infrastructure exposure rose by 42.0% mainly driven by strong
growth in Power (84.5%), roads (61.9%) and ports (63.5%), despite 11.3% decline
in telecom segment. Power sector is facing rough weather due to numerous problems
like lack of adequate fuel supply, difficulty in acquiring land/obtaining environmental
clearances, weak financial health of the state electricity boards or high interest
burden impacting the projects' equity returns.
However, BoB is better placed vis-à-vis its peers in terms of restructured loans. At the
end of Q1FY12, its total cumulative restructured book stood at Rs.71.7 bn (~3.1% of
advances). The recent increase (Rs.4.55 bn during Q1FY12; QoQ growth of 6.8%)
was slightly on the higher side.
We believe the risk of higher slippage from restructured book as well as stressed
segments have increased given weakening macroeconomic conditions. We are factoring
in higher slippage during FY12 (1.25% vs. 1.08% witnessed during FY11).
Moderation is visible in business growth; we are further reducing
the growth assumption on back of recent rate hikes by the central
bank
Moderation is visible in business growth. Total business grew 23.9% YoY during
Q1FY12, below the ~30% growth witnessed during last four quarters. Although loan
growth came at 25.2% YoY, deposit growth was more moderate and came at
22.9%. Within deposits, CASA deposit growth was only 16.1%, which led to 132
bps YoY decline in CASA mix (45 bps decline QoQ).
Bank has been maintaining domestic CASA mix at 34-35% of total deposits in last
couple of quarters, which have helped them in sustaining domestic NIM at ~3.4%
levels.
We are modeling reduced loan growth (19%) as well as deposit growth (18%) for
FY12, on back of rising macro-headwinds.
Valuation & recommendation
At the current market price of Rs.762, the stock is trading at 6.4x its FY12E earnings
and 1.3x its FY12E ABV. We are modeling lower loan growth as well as higher slippage
for FY12.
We have slightly tweaked the earnings estimate for FY12E and now expect net
profit for FY12E to be Rs.46.6 bn. This would result into an EPS of Rs.119.0 and
adjusted book value of Rs.578.8, respectively.
We are maintaining BUY rating on the stock with the revised target price of Rs.1050
(Rs.1170 earlier) based on 1.8x its FY12E adjusted book value.
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