Downgrade to ACCUMULATE with TP Rs430
ACCUMULATE
CMP: Rs418 Target Price: Rs430
Bank of Baroda (BOB) Q1FY10 results were marginally below our expectations as the NII growth remained subdued at 14% yoy and down 18% qoq. However, driven by higher other income and lower provisioning, the net profit of Rs6.9bn was ahead of our expectations. NII growth moderated during the quarter led by 22bps yoy contraction in NIMs to 2.1%
Highlights of the quarter were: (1) CASA maintained at 35.1% (2) controlling slippages for the quarter at 0.3% and (3) amount assets restructured at <3%. Even as slippages were higher than last year, BOB has upgraded large amount of incremental slippages in Q2FY10. Moreover the provision coverage also improved to 81.7% in Q1FY10 from 72.5% in Q1FY09.
We continue to like the improvement in operating performance of BOB on counts of fee income, CASA mix and asset quality. With largely retail liability franchise, pressure on NIMs was expected. We believe NIMs will claw back to 2.7-2.8% by Q3FY10. However, the current valuations of 1.2x its FY10E ABV and 1.1x FY11E ABV are rich. We downgrade the stock to ACCUMULATE with price target of Rs430.
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