Buy Bank of Baroda - Angel

For 3QFY2012, Bank of Baroda (BOB) posted a healthy set of numbers on the operating front; however, slight deterioration in the asset quality was witnessed during the quarter. Provisioning expenses (Rs.850cr), which grew by substantial 179.5% yoy though were mostly offset by higher non-interest income. Consequently, net profit managed to grow by 20.7% yoy to Rs.1,290cr. We recommend a Buy rating on the stock.

Asset quality sees some stress: The bank's businesses gathered pace during 3QFY2012, with advances growing by 9.1% qoq (25.8% yoy) and deposits growing by 6.1% qoq (24.0% yoy). The bank's yield on advances declined by 13bp qoq to 12.0%, while cost of deposits inched higher by 6bp qoq to 6.9%, leading to a 16bp fall in reported NIM to 3.5% during 3QFY2012. Non-interest income for the bank grew substantially by 70.0% yoy to Rs.1,149cr, mainly on account of higher treasury income (Rs.368cr vs. Rs.85cr in 3QFY2011) registered during 3QFY2012. The bank booked profits on liquid investments during 3QFY2012, which led to a sharp surge in treasury income. SA deposits grew by reasonably healthy 16.7% yoy, while CA deposits growth was moderate at 12.3% yoy. On a sequential basis, domestic CASA ratio remained flat at 34.1%. The bank witnessed a slight deterioration in its asset quality, with gross and net NPA levels rising by 14.5% qoq and 18.5% qoq, respectively. The bank restructured accounts worth ~Rs.2,116cr in 3QFY2012, on which the bank made a provisioning of Rs.154cr. However, as a percentage of overall advances, outstanding restructured assets (Rs.9,945cr) remain at low 3.8%. Also the bank's provisioning coverage ratio remained elevated at 80.5% for 3QFY2012.

Outlook and valuation: BOB has been rerated in recent years due to healthy improvement in its core profitability. The bank's current valuations at 1.0x FY2013E ABV are similar to valuations at which its peers are trading, while in our view the bank has a relatively better asset quality and earnings outlook as compared to peers. As a result, it is one of our preferred picks amongst large PSU banks. Hence, we maintain a Buy on the stock with a target price of Rs.907.

Source : Equity Bulls

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