Bank of Baroda> Rating Reduce - Delinquency ratio could rise
We raise our delinquency ratio estimate from 1.17% in FY10 to 1.51% for FY12F (forecast); in Q1FY13, the annualised delinquency ratio was 1.8%. We note, a slowing economy is leading to widespread deterioration across several sectors and we believe BoBís NPL (non-performing loan) book is still beginning to build up and hence we expect the delinquency ratio to go up to 1.76% by FY13. A key risk event coming up is the expected change in top management later in CY12 and this transition is likely to reiterate the asset quality risk to earnings.
Valuation: Our target price implies 0.83x FY13F ABV (adjusted book value) and 5x(times)FY13F.
EPS: BoB currently trades at 0.88x FY13F ABV of R715, 1SD (standard deviation) below its historical mean of 1.1x one-year forward ABV. At our target price of 590, BoB trades at 0.83x FY13F ABV and 5x FY13F EPS.
Q1FY13 results highlights and takeaways from the analystsí meeting: Net interest income came in 5.5% below our estimates, on the back of loan growth of 23% year-on-year (flat q-o-q) and a 23bps decline in NIM (net interest margin)
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