Bank of Baroda -Another set of healthy results:: Credit Suisse,

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Bank of Baroda --------------------------------------------------------------- Maintain OUTPERFORM
Another set of healthy results


● BOB reported another set of healthy results (net profit of Rs10.3
bn; + 20% YoY; 1.1% RoAs) and operating profits were up a
strong 38% YoY driven by healthy NII growth (+24% YoY), strong
fee income (+28% YoY) and lower provisions (0.2% credit costs).
● NIMs were down 23 bp QoQ to 2.9% (broadly in line with
estimates) with rising funding costs. Management expects to
sustain current margin levels going forward. Bank plans to add
500+ branches over the next one year (currently at 3,409
branches), which should aid the deposit franchise going forward.
● Asset quality continued to be robust (annualised gross slippages
of only 1.0% versus 2.0-3.5% for peers this quarter). Credit costs
were only at 0.2% and coverage remained healthy at 83%. Bank
has already migrated to system-based NPL recognition as well.
● Given BOB’s strong profitability (FY12-13 RoEs of 18-19%),
comfortable Tier-I (9.1% excl. 1Q profits), consistent performance
and trading at 1.3x FY13E book (valuations are in line with peers
like SBI, PNB), we retain OUTPERFORM rating.
Healthy operating performance
Loan growth was healthy at 25% YoY (+2% QoQ) and growth was
broadbased across all the segments. Management targets 20%+ loan
growth in FY12. Margins were down 23 bp QoQ (vs our expectation of
15 bp drop) to 2.9% due to 57 bp QoQ rise in the cost of deposits (vs
a 37 bp QoQ rise in yields). Domestic margins were down 30 bp QoQ
to 3.4% and international margins were flat QoQ to 1.4%. The bank
expects margins to sustain at current levels going forward. Deposit
growth was healthy at 23% YoY and share of CASA deposits
remained broadly stable at 33% (down 131 bp YoY). BOB added 45
branches in 1Q12 (currently 3,409 branches) and targets to add 500+
branches over the next one year, which should aid savings deposit
growth (currently at 17% YoY). Fee income growth was strong at 28%
YoY driven by overseas business and management expects it to be in
line with loan growth going forward. Cost-income moderated to 39%
(vs 45% in 4Q) with the absence of pension provisions for retired
employees. Tier-I is comfortable at 9.1% (excl. 1Q profits).

Asset quality continues to be robust
Gross slippages during the quarter were a low 1.0% of the loans
annualised (vs 1.1% in FY11 and 2.0-3.5% levels for peers in 1Q).
Despite low credit costs of only 0.2% during the quarter (vs 0.5% in
FY11), coverage was healthy at 83% (vs 85% in 4Q) – highest among
peers. Overall asset quality remained robust with stable gross NPLs
(1.5%) and net NPLs (0.4%). The bank has already moved to systembased
NPL recognition. Agri NPLs rose to 4.1% (from 3.2% in 4Q)
while NPLs in other segments witnessed a sequential decline.
Outstanding restructured assets are at 2.7% of loans (bank
restructured 0.2% of loans during the quarter) and the cumulative
slippages from the restricted assets are at 14%. Our forecast FY12-13
credit costs are at 0.6-0.7%.