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Bank of Baroda Neutral
BOB.BO, BOB IN
Mixed 1Q FY12: Weak margins but stable asset
quality
BOB reported 1Q FY12 net profit of Rs10.3B, up 20% y/y. PPOP was
5% lower than expected due to the NII miss, and the 3% net profit beat
was primarily driven by lower provisioning and tax rate. Stable assets
are a positive, but operating profit is likely to remain under pressure
due to moderating growth and margins. Maintain Neutral.
Margin contraction higher than expected: Margins declined by 23bp
q/q with a 30bp q/q contraction in domestic margins. Adjusted for the
Rs25B capital infusion, the margin contraction would have been higher.
We believe margins will stay muted and that consensus will revise down
its margin estimates (JPMe FY12 EPS 9% lower than consensus).
Stable asset quality continues to surprise: BOB maintains its
superiority in asset quality with gross slippages at ~1.0% vs peers’
>2.0%. 100% system-based NPA recognition (including Agri) also
provides comfort. Adjusted for one-off standard asset provisioning,
credit costs were down sequentially to ~25bp. BOB’s steady asset
quality trends in the past have led to low credit cost expectations by the
street and any sharp uptick in delinquencies could be negative.
Other highlights: (1) Credit growth moderated to ~25% y/y from 30%
in 4Q11, with overseas loan book aiding growth in 1Q12. Management
expects to maintain higher-than-system growth, although it expects
overall momentum to slow down. (2) Core fee income growth was
strong at ~28% y/y, but low investment gains and recoveries led to weak
non-interest income growth of 4% y/y.
Maintain Neutral: With superior asset quality, we expect BOB to
remain a relatively safe haven among PSU banks for investors.
However, PPOP is likely to stay under pressure from compressing
margins, and with valuations at a premium to peers’, downside risks
from any negative asset quality could be significant.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda Neutral
BOB.BO, BOB IN
Mixed 1Q FY12: Weak margins but stable asset
quality
BOB reported 1Q FY12 net profit of Rs10.3B, up 20% y/y. PPOP was
5% lower than expected due to the NII miss, and the 3% net profit beat
was primarily driven by lower provisioning and tax rate. Stable assets
are a positive, but operating profit is likely to remain under pressure
due to moderating growth and margins. Maintain Neutral.
Margin contraction higher than expected: Margins declined by 23bp
q/q with a 30bp q/q contraction in domestic margins. Adjusted for the
Rs25B capital infusion, the margin contraction would have been higher.
We believe margins will stay muted and that consensus will revise down
its margin estimates (JPMe FY12 EPS 9% lower than consensus).
Stable asset quality continues to surprise: BOB maintains its
superiority in asset quality with gross slippages at ~1.0% vs peers’
>2.0%. 100% system-based NPA recognition (including Agri) also
provides comfort. Adjusted for one-off standard asset provisioning,
credit costs were down sequentially to ~25bp. BOB’s steady asset
quality trends in the past have led to low credit cost expectations by the
street and any sharp uptick in delinquencies could be negative.
Other highlights: (1) Credit growth moderated to ~25% y/y from 30%
in 4Q11, with overseas loan book aiding growth in 1Q12. Management
expects to maintain higher-than-system growth, although it expects
overall momentum to slow down. (2) Core fee income growth was
strong at ~28% y/y, but low investment gains and recoveries led to weak
non-interest income growth of 4% y/y.
Maintain Neutral: With superior asset quality, we expect BOB to
remain a relatively safe haven among PSU banks for investors.
However, PPOP is likely to stay under pressure from compressing
margins, and with valuations at a premium to peers’, downside risks
from any negative asset quality could be significant.
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