We maintain ‘reduce’ on Bank of Baroda (BoB) shares and assign a target price of Rs 765, using a three-stage residual-income valuation method that assumes 15.7% CAGR for interest-earning assets over FY12-17, 8% CAGR over FY17-25 and a terminal growth rate of 4% beyond that.
We take into consideration the average ROE of 14.8% over FY12-25 and a 9.3% terminal value ROE, and discount rates ranging from 14.2% (current cost of equity) for FY12-17, 12.25% for FY18-20 and a 10% terminal rate.
BoB reported a PAT of Rs 1,030 crore for Q4FY13 versus our expectation of Rs 870 crore and consensus expectation of Rs 1,080 crore. Pre-provisioning operating profit was in line at Rs 2,180 crore, but PBT was significantly below our expectations at Rs 580 crore (our estimate of Rs 1,200 crore).
NIMs declined 14 bps q-o-q during the quarter to 2.51% (2.65 in Q3) as yields on advances decline 32 bps q-o-q.
Asset quality pain continued in the fourth quarter. Delinquencies came in higher at Rs 2,080 crore versus Rs 2,000 crore in the third quarter (our estimate of Rs 1,700 crore) and the bank restructured loans of Rs 2,840 crore versus Rs 1,590 crore in the previous quarter.
This takes the total impairment to Rs 4,960 crore versus Rs 3,590 crore in Q3. The management has further guided for a restructuring pipeline of Rs 5,300 crore for Q1FY14f. GNPL ratio remained flat q-o-q at 2.4% as the bank made a heavy write-off of Rs 1,230 crore versus Rs 350 crore in Q3.
Loans grew 14.2% y-o-y compared to our estimate of 13.1% y-o-y. Loan growth was supported by 30.3% y-o-y growth in the SME segment and 21.8% y-o-y growth in international book.
