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Bank of Baroda
Management meeting takeaways
Event
Concerns emerge: We met the management of BOB for a quick update on
the business outlook. Though management sounded reasonably sanguine on
asset quality, the sharp slowdown in growth was a key concern.
Impact
Expect growth to slow down sharply in domestic business: Domestic
loans, which grew 28% last year, are expected by management to grow at
less than 20% this year. On the ground, sanctions have slowed down sharply
(YTD they are down nearly 70% YoY) and project disbursements are falling
short of earlier expectations.
Asset quality – confident of containing credit costs: Though management
didn’t give any guidance as such, it was confident that slippages would be
well below industry standards. The bank has a well-diversified exposure book,
both by sector and by borrower. It has stayed away from teaser-rate home
loans and telecom companies mired in controversies, and kept the level of
restructuring low. On the infrastructure side, management clarified that
funding done at the SPV level doesn’t have any recourse to the parent
balance sheet, and the risk of losses is confined to the performance of each
project. Air India (unlisted) exposure is still not under CDR (corporate debt
restructuring).
International business – no worries on the asset side: Management
admitted that dollar liquidity was a concern and that swap lines have dried out.
It is not worried on the asset side, as nearly 40% of the exposure is in the
form of inventory-backed letters of credit; close to another 40% is in the form
of ECBs to Indian corporates, and around 20% is exposure to local markets in
which the banks operate.
Some other key guidance: The bank intends to maintain a Tier-I of 8.5%
with overall CAR at 13%. Management expects domestic NIMs to normalise
at around 3.3–3.4%. According to management, last year’s NIM of 3.8% was
an aberration, which it doesn’t expect will sustain. Management expects the
lagged repricing of deposits to exert pressure on margins in the near term.
Domestic liquidity is fine: Management is not worried much about domestic
liquidity as banks have excess SLR and they are yet to use the MSF window
(marginal standing facility), indicating that liquidity is fine.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs800.00 based on a Gordon Growth methodology.
Catalyst: Increase in NPLs/slippages and quantum of restructured assets
Action and recommendation
Neutral with TP of Rs800, favourite amongst PSUs: We would recommend
Bank of Baroda to investors looking for value picks among PSU banks, given
the bank’s track record and fundamentals.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of Baroda
Management meeting takeaways
Event
Concerns emerge: We met the management of BOB for a quick update on
the business outlook. Though management sounded reasonably sanguine on
asset quality, the sharp slowdown in growth was a key concern.
Impact
Expect growth to slow down sharply in domestic business: Domestic
loans, which grew 28% last year, are expected by management to grow at
less than 20% this year. On the ground, sanctions have slowed down sharply
(YTD they are down nearly 70% YoY) and project disbursements are falling
short of earlier expectations.
Asset quality – confident of containing credit costs: Though management
didn’t give any guidance as such, it was confident that slippages would be
well below industry standards. The bank has a well-diversified exposure book,
both by sector and by borrower. It has stayed away from teaser-rate home
loans and telecom companies mired in controversies, and kept the level of
restructuring low. On the infrastructure side, management clarified that
funding done at the SPV level doesn’t have any recourse to the parent
balance sheet, and the risk of losses is confined to the performance of each
project. Air India (unlisted) exposure is still not under CDR (corporate debt
restructuring).
International business – no worries on the asset side: Management
admitted that dollar liquidity was a concern and that swap lines have dried out.
It is not worried on the asset side, as nearly 40% of the exposure is in the
form of inventory-backed letters of credit; close to another 40% is in the form
of ECBs to Indian corporates, and around 20% is exposure to local markets in
which the banks operate.
Some other key guidance: The bank intends to maintain a Tier-I of 8.5%
with overall CAR at 13%. Management expects domestic NIMs to normalise
at around 3.3–3.4%. According to management, last year’s NIM of 3.8% was
an aberration, which it doesn’t expect will sustain. Management expects the
lagged repricing of deposits to exert pressure on margins in the near term.
Domestic liquidity is fine: Management is not worried much about domestic
liquidity as banks have excess SLR and they are yet to use the MSF window
(marginal standing facility), indicating that liquidity is fine.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs800.00 based on a Gordon Growth methodology.
Catalyst: Increase in NPLs/slippages and quantum of restructured assets
Action and recommendation
Neutral with TP of Rs800, favourite amongst PSUs: We would recommend
Bank of Baroda to investors looking for value picks among PSU banks, given
the bank’s track record and fundamentals.
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