Dear All,
Forwarding you the Result Update on Bank of Baroda for 4QFY2011 with a Buy recommendation and a Target Price of `1,096 (12 months).
For 4QFY2011, Bank of Baroda posted healthy net profit growth of 31.0% yoy (21.1% qoq) to `1,294cr. The bank received interest of `252cr on income tax refund and its effective tax rate for the quarter was only 4.5% (compared to 30.9% in 3QFY2011), leading to strong sequential growth in profitability. Asset quality concerns were visible during the quarter, while pension expenses led to higher employee costs. Strong sequential growth in business and non-interest income were the key positives from the results. We recommend a Buy rating on the stock.
Strong sequential business growth, but with higher slippages. For 4QFY2011, the bank’s overall net advances grew by healthy 30.6% yoy, while overall deposits also showed strong growth of 26.7% yoy. Domestic CASA ratio at the end of 4QFY2011 stood at 34.4%, while global CASA ratio stood at 28.7%. Reported NIM of the bank increased by 25bp to healthy 3.45%. Domestic NIM of the bank declined by 12bp to 3.7%, while overseas NIM remained stable at 1.4%. During 4QFY2011, the bank witnessed asset-quality concerns with slippages considerably increasing by `390cr sequentially to `667cr. Consequently, annualised slippage ratio increased from 0.6% in 3QFY2011 to 1.5% in 4QFY2011.
Outlook and valuation: At the CMP, the stock is trading at P/ABV multiple of 1.2x FY2013E ABV of `731cr. Historically, the stock has traded at 0.8x–1.3x one-year forward P/ABV multiple, with a five-year median of 1.0x, but has been rerated over the past two years to a 1.5x average. This is because of the bank’s consistent improvement in profitability, underpinned by fruitful investments in channel modernisation, healthy CASA and balance sheet growth and declining operating expenses (1.5% of avg. assets in FY2011). We have assigned a target FY2013E P/ABV multiple of 1.5x, implying an upside of 20.2%; hence, we recommend a Buy rating on the stock with a target price of `1,096.
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If you have any further queries, feel free to call us on 022 39357600, Extn: 6864 / 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6864,6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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