Bank of Baroda (BANBAR) 156

Transcription

1 [ Jun-16 Aug-16 Oct-16 Nov-16 Jan-17 Mar-17 Apr-17 Jun-17 Management Meet Note Rating matrix Rating : Buy Target : 200 Target Period : 12 months Potential Upside : 28% What s changed? Target Unchanged EPS FY18E Changed from 15.9 to 10.2 EPS FY19E Changed from 24.3 to 19.1 Rating Changed from Hold to Buy Key financials Crore FY16 FY17 FY18E FY19E NII 12,742 13,507 14,095 15,390 PPP 8,824 10,974 11,707 13,087 PAT (5,395) 1,384 2,348 4,411 Valuation summary FY16 FY17 FY18E FY19E P/E (6.7) Target P/E (8.6) P/ABV Target P/ABV RoA (0.8) RoE (13.3) Stock data Market Capitalisation Crore GNPA (Q4FY17) Crore NNPA (Q4FY17) Crore NIM (Q4FY17) % week H/L 202/128 Networth Crore Face value 2 DII Holding (%) 20.4 FII Holding (%) 12.2 Price performance 1M 3M 6M 12M BOB PNB BOI Price chart Research Analyst BoB Kajal Gandhi kajal.gandhi@icicisecurities.com Vishal Narnolia vishal.narnolia@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com Nifty (RHS) Short-term pain for long term gains. June 28, 2017 Bank of Baroda (BANBAR) 156 We met the management of Bank of Baroda (BoB) to get an insight into the current scenario on asset quality & future plans. Currently, banking system is facing challenge primarily on two fronts growth & asset quality. Led by slowdown in credit demand from corporate, advances book stayed flat in FY17. However, management has guided for credit offtake at 8-10% in FY18E, led by retail and mid-corporate segment though credit demand from large corporate is seen staying muted. On resolution process, based on assessment of sustainable proportion of debt, banks may take haircut to the extent of 50-60%. BoB expects resolution of a few of the cases referred to NCLT in the current fiscal. Out of 12 accounts RBI asked to be referred to NCLT, BoB has exposure to ~10. However, exposure to any individual borrower does not exceeds 2000 crore with more than 50% of provision coverage on exposure. Top 50 accounts forming ~20% of its GNPA carry 53% provision for BoB. The management has indicated a deceleration in slippage with absolute GNPA target at crore in FY18E ( crore in FY17). Credit growth subdued in past two years; expect traction to improve ahead Traditionally, BoB was the third largest bank in India but climbed to second position in FY14 due to consistent credit growth. It grew its credit at a healthy 22.6% CAGR from crore in FY09 to crore in FY14. The book increased by crore in FY09-14 of which international credit was a major contributor ( crore). During FY15, credit traction dipped to 7.8% YoY and then 10.3% YoY to crore in FY16. In FY17, the credit book was flat. The management has guided for growth of 8-10% ahead. Consequently, we have lowered our estimate and expect advances to grow at 9.9% CAGR to crore by FY19E. Strong liability franchise; margin improvement led by lower CoD BoB has a pan-india presence with a wide network of 5422 branches. Of these, 28% branches (~ 1500 branches) are in CASA rich Gujarat and Maharashtra and have higher industrial activity. The domestic CASA ratio had been strong at ~39%. With demonetisation, CASA ratio surged to 40.46% in Q3FY17. In Q4, global NIMs improved 11 bps QoQ to 2.17% led by rise in foreign NIMs by ~10 bps to 1.18% while domestic NIMs were flat at 2.5%. We expect NIMs to improve to ~2.3% by FY19E. Slippages accretion to slow down; resolution to keep credit cost higher The loan book is well-diversified with overseas book of crore (27.6%). Sectors: SME crore (19.5%), retail crore (19%), agri crore (16%), corporate crore (23%). Diversified exposure had contained asset quality of BoB vs. peers in past. However, with RBI s review in FY16, NPA pressure was severe with fresh slippages at crore & GNPA ratio rising to 10% and 10.5% by FY17. We expect slippages to stay high. Incremental provisions on accounts referred to NCLT to keep credit cost elevated. Higher provision results in earnings downgrade; maintain target & rating In anticipation of muted credit demand from corporate and higher provision led by incremental coverage on accounts referred to NCLT, we revise our earnings estimates downwards by ~21%. Hence, return ratios are expected to remain subdued. Cleaning of books, management focus on operational efficiency and increased credit traction remain positive. Also, resolution in a few accounts remains an upside risk. Accordingly, we maintain our target price at 200 valuing BoB at 1.3x FY19E ABV. Factoring 53% provisions on top 50 accounts and expected positive from resolutions, we upgrade the stock from HOLD to BUY. ICICI Securities Ltd Retail Equity Research

2 Financial summary Profit and loss statement Crore Interest Earned Interest Expended Net Interest Income growth (%) Non Interest Income Fees and advisory Treasury Income /sale of Invt Other income Net Income Employee cost Other operating Exp Operating Income Provisions PBT Taxes Net Profit growth (%) NA NA EPS Key ratios Valuation No. of Equity Shares EPS ( ) BV ( ) BV-ADJ ( ) P/E P/BV P/ABV Yields & Margins (%) Net Interest Margins Yield on avg earning assets Avg. cost on funds Avg. Cost of Deposits Yield on average advances Quality and Efficiency (%) Cost / Total net income Credit/Deposit ratio GNPA NNPA RONW ROA Balance sheet Crore Sources of Funds Capital Reserves and Surplus Networth Deposits Borrowings Other Liab & Prov (incl sub-debt) Total Uses of Funds Fixed Assets Investments Advances Other Assets Cash with RBI & call money Total Growth ratios (% growth) Total assets Advances Deposits Total Income Net interest income Operating expenses Operating profit Net profit Book value EPS ICICI Securities Ltd Retail Equity Research Page 2

3 ICICIdirect.com coverage universe (Banking) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17E FY18E FY19E Bank of Baroda (BANBAR) Buy 38, Punjab National Bank (PUNBAN) Buy 31, State Bank of India (STABAN) Buy 249, Indian Bank (INDIBA) Buy 14, Axis Bank (AXIBAN) Hold 124, City Union Bank (CITUNI) Buy 11, DCB Bank (DCB) Hold 6, Federal Bank (FEDBAN) Buy 20, HDFC Bank (HDFBAN) 1,668 1,700 Buy 435, IndusInd Bank (INDBA) 1,472 1,570 Buy 90, Jammu & Kashmir Bk(JAMKAS) Buy 5, Kotak Mahindra Bank (KOTMAH) Hold 249, Yes Bank (YESBAN) 1,429 1,650 Hold 65, ICICI Securities Ltd Retail Equity Research Page 3

4 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 4

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