Bank of Baroda - 4QFY2012 Result update - Angel Broking

For 4QFY2012, Bank of Baroda (BOB) posted a moderate set of numbers on the operating front. Deterioration in asset quality was also witnessed during 4QFY2012 due to higher slippages and restructuring. However, tax write back of Rs.425cr led to bottom-line growing by 17.3% yoy. We recommend a Buy rating on the stock.

Asset quality sees some stress: For FY2012, the bank's advances and deposits grew by a strong 25.7% yoy and 26.0% yoy respectively. The bank's domestic CASA growth remained reasonably healthy at 15.9% yoy. The bank's domestic yield on advances declined by 30bp qoq to 11.7%, while domestic cost of deposits came in higher by 27bp qoq to 6.9%, leading to a 7bp fall in reported NIM to 3.4% during 4QFY2012. The fee income of the bank remained muted in 4QFY2012 growing by a marginal 0.4% qoq (up a moderate 6.6% yoy).

Commission and brokerage income was higher in 4QFY2012 (up 17.7% qoq), however was negated by lower income from Forex transactions and incidental charges. Employee expenses for the bank increased by 51.2% qoq on back of additional pension provisioning of ~Rs.300cr. The slippage levels for the bank which had increased to Rs.952cr in 3QFY2012 (quarterly run rate of Rs.500cr) increased further to Rs.1,323cr in 4QFY2012 (on back of a chunky media account).

The bank's restructured book increased by 51.7% qoq (Rs.5,139cr restructured during 4QFY2012) on back of restructuring of SEBs (Rs.2,000cr) and Air India (Rs.2,400cr). The bank reported a tax write-back of Rs.425cr during 4QFY2012 on account of pending tax credit and higher tax exemptions during 4QFY2012 due to higher NPA write-offs (Rs.530cr during 4QFY2012).

Outlook and valuation: BOB has been rerated in recent years due to healthy improvement in its core profitability. The bank's current valuations at 0.8x FY2014E 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.969.

Source : Equity Bulls

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