Bank of Baroda --Steady operational performance sustains… :: ICICI Securities, report link

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Steady operational performance sustains…
• Profits came in below estimate at | 1104 crore, down 5.5% YoY vs.
estimate of | 1266 crore largely due to higher tax provisions &
provisions for investment depreciation in equity portfolio.
• However, on the operational front the performance was comforting
with PPP increasing at a healthy rate of 13% YoY to | 2403 crore
mainly led by strong NII growth of 18% YoY to | 3401 crore.
• Improvement in NIM from 2.35% to 2.4% aided NII traction.
Domestic NIM crossed 3%. It stood at 3.02% vs. 2.94% in Q1FY15.
• The asset quality remained mixed as though fresh slippages were
slightly lower QoQ at | 1758 crore vs. | 1881 crore, GNPA increased
by | 971 crore QoQ to | 13058 crore. This was mainly on account of
lower reductions of ~| 900 crore vs. | 1811 crore in Q1FY15. Fresh
RA was higher QoQ at | 1175 crore vs. | 986 crore in Q1FY15
Consistent credit growth makes BoB second largest Indian bank
Traditionally, BoB was the third largest bank in India but has climbed up
to second position during FY14 on the back of consistent credit growth.
BoB has grown its credit at a healthy 22.6% CAGR from | 143251 crore in
FY09 to | 397006 crore in FY14. The outstanding loan book increased by
| 253754 crore in FY09-14 of which international credit was the major
contributor (| 90001 crore). Besides, SME contributed | 40588 crore,
retail- | 25529 crore, agri- | 10797 crore, corporate & others- | 85971
crore. With the rupee expected to stabilise, BoB is not expected to
outpace industry credit growth. We estimate credit will grow at 16.5%
CAGR to | 536429 crore over FY14-16E with growth focused on retail.
Strong liability franchise to support 2.4% global NIM, 2.9% domestic NIM
BoB has a pan-India presence with a wide network of 4902 branches. Of
these, 30% branches (~| 1450 branches) are in Gujarat and Maharashtra,
which are CASA rich states and have higher industrial activity. The
domestic CASA ratio of BoB has been stable at 32% over FY12-14, which
is expected to be maintained for FY15E, FY16E supporting the domestic
NIM of ~2.9%. The global NIM is low at 2.3% as the bank earns only
1.2% NIM on its overseas loan book (31% of total credit). Going ahead,
global NIM is estimated to be maintained at 2.2-2.4% on the back of a
strong liability franchise and faster growth in domestic advances.
Well-diversified loan book contains asset quality on relative basis
The current loan book composition of BoB is well-diversified with
overseas book of | 126977 crore (33%). Sectors: SME- | 58899 crore
(23%), retail- | 47379 crore (18%), agriculture- | 33539 crore (13%),
corporate and others- | 97130 crore (38%) of domestic advances.
Diversified geographic & sectoral exposure has contained the asset
quality of BoB compared to peers, which have GNPA ratio of 4%+ & RA
of 8%+. BoB’s GNPA ratio is 3.3% (|13057 crore) while its RA is | 22417
crore (5.81% of credit). Even domestic GNPA ratio is 4.4% & restructured
book is 7.75% (| 19678 crore), depicting superior credit monitoring
mechanism. We estimate GNPA ratio of 3.2% (| 17064 crore) by FY16E.
Relatively steady operational performance provides comfort on valuations
BoB’s return ratios are better compared to peers with RoA of 0.8% and
RoE of 15% by FY16E. Its stressed asset (NNPA + RA) proportion is
relatively low at 7.55% of credit, which provides comfort on earning
visibility. The stock is one of our top picks and we maintain BUY. We
maintain our target multiple of 1.4x its FY16E and target price of | 1250.

LINK
http://content.icicidirect.com/mailimages/IDirect_BankBaroda_Q2FY15.pdf