Bankofbaroda LKP is bullish on Bank of Baroda (BoB) and has recommended buy rating on the stock with a target of Rs 1086 in its July 28, 2011 research report. “Bank of Baroda (BoB), reported PAT growth of 20% yoy Q1FY12. NII and PAT for Q1FY12 were inline with our full estimates for FY12. Advances of the bank grew by 25%/2.1% yoy /qoq. Domestic credit grew by 24%/(0.5)% yoy/ qoq driven by growth in SME by 31%/3.7% yoy/qoq and retail 24%/(4.6)% yoy/qoq. Management has guided that the bank will grow advances 200-300 bps ahead of industry growth. However, the traction in loan book seen in previous years is likely to slow due to lower sanctions in FY12.
Further increase in lending rates beyond its July 2011 base rate hike is likely to moderate credit demand. The bank’s deposit grew by 23%/2.5% yoy/qoq while CASA grew 17%/(0.4)% yoy/qoq. The bank maintained CD ratio ~74% and CASA share of ~28%. However, the outlook and trend in domestic CASA does show a possibility of pressure on CASA share.” “NIMs for Q1FY12 were 2.9% v/s 2.9%/3.1% yoy/qoq (Q4FY11 NIMs adjusted for tax refund). Higher cost of funds and lower pass on through yields on the domestic book has resulted in lower NIMs qoq. The bank has raised deposit rates by 100bps in Q4FY11 and base rate by 75bps in Q1FY12 and subsequently in July 2011. Thus we expect the impact to show up in Q2FY12 NIMs. Going forward we expect NIMs to remain under pressure as monetary policy tightening continues.”
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