Aditya Birla Money is bullish on Bank Of Baroda (BOB) and has recommended accumulate rating on the stock with a target price of Rs 197, in its research report dated February 11, 2015.
Bank of Baroda (BOB) delivered disappointing set of Q3FY15 result with PAT de-growing by 68.1% YoY to Rs 3.3 bn. Higher NPA provision and taxes were the major culprits that eroded profitability. There was a one-time tax liability of Rs 4.1 bn arising from Dubai tax authority. However, the sharp deterioration in asset quality was a major negative surprise as BOB has been delivering stable asset quality so far. In Q3FY15, its absolute GNPA mounted by Rs 24 bn QoQ to Rs 154.5 bn while NNPA increased by Rs 15.9 bn to Rs 82.9 bn. Even fresh restructuring was higher at Rs 16 bn in Q3FY15 vs. Rs 11.8 bn in Q2FY15 and Rs 9.9 bn in Q1FY15.
Outlook and Valuations
"In short term, the issues related to asset quality, modest credit growth, etc. to continue but some improvement is expected in FY16E. Its stressed asset (NNPA + restructured asset) proportion is relatively low at 8% of credit compared to peers having 10%+ proportion. Besides, the tier 1 ratio is at relatively comfortable level of 9.1%. Considering the poor Q3FY15 results, we have cut our profit estimate and have factored in higher NPAs. Resultantly, our ABV estimate for FY16E has been revised down from Rs 164 earlier to Rs 151.5 now. We retain our target multiple of 1.3x FY16E ABV to arrive at a target price of Rs 197 per share. We recommend 'Accumulate' rating on the stock", says Aditya Birla Money research report.
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