Bank of Baroda |Q2FY15 Result Update | Operating performance remains healthy, however asset quality impacted marginally … maintain buy with revised target price of Rs 1118 … :: IndiaNivesh

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Bank of Baroda’s Q2FY15 performance was ahead of expectation on Net interest
income front with growth of 18% yoy to Rs 34 bn driven by marginal improvement
in margins and 14% yoy growth in loan book. Operating profit and Net profit was
largely inline with expectation at Rs 24 bn and Rs 11 bn respectively with
provisioning expense of Rs 8.8 bn. Fresh slippages were contained at Rs 17.6 bn
(1.8% ann) vs Rs 18.8 bn in Q1FY15 while fresh restructuring was slightly higher
at Rs 11.8 bn (vs Rs 9.9 bn in Q1FY15) mainly due to higher restructuring in overseas
operations. However restructuring in domestic was lower at Rs 9.3 bn (Rs 9.4 bn
in Q1FY15 and Rs 14.8 bn in Q2FY14). With 15% CAGR earnings growth for FY14-
16E and 14% ROEs, BOB’s valuation at 1.1x for FY16E ABV looks reasonable,
continue to maintain BUY with revised target price of Rs 1118, valuing at ~1.3x
FY16E ABV. Management change remains the key risk to our estimates.
Result highlights
Retail advances growth was strong sequentially:
BOB’s loan growth was at 14% yoy to Rs 3858 bn. Overseas advances growth
continues to remain higher at 17% yoy majorly led by loan given to Indian corporates.
In Domestic loan book, retail advances growth was strong at 15% yoy (6% qoq) to
Rs 463 bn. Proportion of retail loan book increased sequentially from 11.4% in
Q1FY15 to 12% in Q2FY15

Valuation:
BOB’s Q2FY15 performance was largely inline with expectation on operating front.
However Asset quality impacted marginally mainly due to lower recoveries and
upgradations. Fresh slippages were contained while fresh restructuring was higher
mainly due to higher restructuring overseas operations. Further on liability side,
CASA deposits continues to drive overall deposits thereby reducing the dependency
on high cost bulk deposits. At CMP of Rs 962, BOB is trading at P/ABV of 1.3x and
1.1x for FY15E and FY16E respectively. We continue to maintain buy rating on stock
with target price of Rs 1118, valuing it at 1.3x FY16E ABV. Management change
remains the key risk to our estimates.

LINK
http://www.indianivesh.in/Admin/Upload/635512061284817500_Bank%20of%20Baroda_Q2FY15%20Result%20%20Update.pdf