Bank of Baroda - 1QFY2013 Result Update - Angel Broking

Bank of Baroda reported moderate performance on the net profit front during 1QFY2013, with a growth of 10.3% yoy to Rs.1,139cr, which was in-line with our estimates. Earnings growth was moderate despite a healthy growth of 23.0% yoy in operating profits to Rs.2,253cr, on account of higher provisioning considering continued pressures on the asset quality front.

Higher loan loss provisioning during 1QFY2013, as asset quality pressures continues: For 1QFY2013, the bank witnessed healthy growth in its balance sheet, with both advances and deposits growing by more than 22% yoy each. Growth in advance was aided by strong 41.0% yoy growth in overseas loan book (partly due to INR depreciation). The bank's domestic CASA growth remained moderate at 11.6% yoy. The bank's domestic yield on advances declined by 6bp qoq to 11.7%, while domestic cost of deposits came in higher by 13bp qoq to 7.3%, leading to a 22bp fall in reported NIM to 3.2%. The bank witnessed a healthy 21.6% yoy growth in its non-interest income (excluding treasury), on account of significantly higher recoveries and strong growth of 55.5% yoy in other misc. income, even as income from CEB and incidental charges remained flattish. On an absolute basis, gross and net NPA levels for the bank increased sequentially, by 19.1% and 19.5%, respectively. Slippages moderated slightly qoq to Rs.1,257cr, though still remain at elevated levels considering average of ~Rs.558cr for six quarters prior to 4QFY2012. Slippages were not chunky, coming largely from Agri and SME segment (normal 1Q phenomena), of which management expects to recover atleast ~60-70% in the next few quarters. During the quarter, the bank restructured domestic loans worth Rs.771cr (substantially lower than Rs.5,139cr restructured during 4QFY2012), thereby taking its cumulative outstanding domestic restructured book to Rs.15,745cr. The bank increased its loan loss provisioning significantly (higher by more than five times on a yoy basis). Higher credit cost was partially offset by lower tax provisioning, which was partly due to higher profits from overseas business attracting lower tax rates. PCR for the bank dipped sequentially by 103bp, but remain comfortable at 79.0%.

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. Hence, we maintain a Buy on the stock with a target price of Rs.872.

Source : Equity Bulls

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