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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Time to BUY
We upgrade our recommendation on BOB to BUY (from O-PF) as the
recent price correction offers a good investment opportunity in one of
India’s best PSU banks. Over the past three years, BOB’s investment in
scaling-up its liability franchise has enabled it to steadily gain market
share even as it sustains high profitability and asset quality standards. A
well capitalised balance sheet can support 24% Cagr in loans over FY11-
13 and drive 17% Cagr in profit. Our target price of Rs1100 (26% upside)
is based on 1.6x FY13 adjusted PB.
Improvement in deposit franchise supported market share gains
Over the past few years, BOB has strengthened its deposit franchise through
investment in technology and widening of product suite. These initiatives
have enabled BOB to record among the highest growth in CASA deposits
compared to peers (23% over FY08-11). Leveraging on the improvement in
liability franchise, BOB has steadily gained market share in loans.
Asset quality among the best
Even as BOB gained market share in loans, it has sustained among the best
asset quality standards. Over FY08-11, its delinquency ratio of 1-1.2% is one
of the lowest that also reflects in its low stressed asset portfolio. BOB has also
maintained high provision coverage ratio (75% of gross NPA) that may
cushion earnings against any asset quality risks in future.
Superior profitability
BOB’s FY11 ROA of 1.3% is one of the highest among peers and this is the
key to its superior ROE. We believe that ROA is the prime indicator of
profitability, rather than ROE that also gets influenced by leverage- which is
high in case of many PSU banks. BOB’s superior asset quality that has kept
credit costs low and is a key driver of its higher profitability- compensating for
its lower NIM (due to higher share of overseas loans, mostly to Indian clients)
and lower fee income.
Upgrade to BUY
We believe that BOB’s well capitalised balance sheet (Tier I CAR of 9.9%) and
higher ROE (+20%) will support 24% Cagr in loans over FY11-13 that will
drive 17% Cagr in earnings. The recent correction in stock price on the back
of some asset quality disappointment in 4Q and underperformance by banks
in general offers a good entry-point for investment in quality stocks. Asset
quality disappointment would be a key risk, but with bank’s track record the
risk-reward equation appears to be favourable. Our target price of Rs1,100 is
based on 1.6x FY13 PB and offers 26% upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Time to BUY
We upgrade our recommendation on BOB to BUY (from O-PF) as the
recent price correction offers a good investment opportunity in one of
India’s best PSU banks. Over the past three years, BOB’s investment in
scaling-up its liability franchise has enabled it to steadily gain market
share even as it sustains high profitability and asset quality standards. A
well capitalised balance sheet can support 24% Cagr in loans over FY11-
13 and drive 17% Cagr in profit. Our target price of Rs1100 (26% upside)
is based on 1.6x FY13 adjusted PB.
Improvement in deposit franchise supported market share gains
Over the past few years, BOB has strengthened its deposit franchise through
investment in technology and widening of product suite. These initiatives
have enabled BOB to record among the highest growth in CASA deposits
compared to peers (23% over FY08-11). Leveraging on the improvement in
liability franchise, BOB has steadily gained market share in loans.
Asset quality among the best
Even as BOB gained market share in loans, it has sustained among the best
asset quality standards. Over FY08-11, its delinquency ratio of 1-1.2% is one
of the lowest that also reflects in its low stressed asset portfolio. BOB has also
maintained high provision coverage ratio (75% of gross NPA) that may
cushion earnings against any asset quality risks in future.
Superior profitability
BOB’s FY11 ROA of 1.3% is one of the highest among peers and this is the
key to its superior ROE. We believe that ROA is the prime indicator of
profitability, rather than ROE that also gets influenced by leverage- which is
high in case of many PSU banks. BOB’s superior asset quality that has kept
credit costs low and is a key driver of its higher profitability- compensating for
its lower NIM (due to higher share of overseas loans, mostly to Indian clients)
and lower fee income.
Upgrade to BUY
We believe that BOB’s well capitalised balance sheet (Tier I CAR of 9.9%) and
higher ROE (+20%) will support 24% Cagr in loans over FY11-13 that will
drive 17% Cagr in earnings. The recent correction in stock price on the back
of some asset quality disappointment in 4Q and underperformance by banks
in general offers a good entry-point for investment in quality stocks. Asset
quality disappointment would be a key risk, but with bank’s track record the
risk-reward equation appears to be favourable. Our target price of Rs1,100 is
based on 1.6x FY13 PB and offers 26% upside.
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