Wednesday, June 10, 2009


Management confident of 20% earnings growth in FY10: We met the CMD, Mr Mallaya, of Bank of Baroda to get updates on business growth, asset quality and profitability. The management is confident of achieving its FY10 guidance of: (1) RoA of 1% or above and earnings growth of 20%, (2) loan growth of 23-25%, (3) NIM of ~3% (decline ~20bp in FY10), (4) slippage ratio of ~1.25% v/s 0.94% in FY09, and (5) Cost to Income ratio of <45%.>

Upgrading earnings estimate by 10-12%: We have upgraded our earnings estimate by ~10% in FY10 and ~12% in FY11. This factors in: (1) higher loan growth of 18% in FY10-11 v/s 16% earlier (management guidance of 23-25% in FY10), (2) margin decline of 18bp (v/s 8bp earlier) in FY10 (management sees up to 20bp), and (3) credit cost assumption
of 80bp v/s 100bp earlier.

BoB is our preferred bet among state-owned banks: We estimate RoA of 0.9% and RoE of 18% in FY10-11. We expect BoB to report EPS of Rs61 in FY10 and Rs69 in FY11, an FY09-11 CAGR of 7%. BV would be Rs365 in FY10 and Rs418 in FY11. The stock trades at 1.1x FY10 BV and 6.7x FY10 EPS. We like BoB for its inherent strengths of large branch network, technological advancements, strong international business, extensive client base, relatively low risk loan book and clean asset quality. BoB is our preferred bet among state-owned banks.

To see full report: BANK OF BARODA