For BOB, 180-195 zone might be proved as very strong supply zone for the time being
Expect Q3/Q4FY16 to be very tough for stressed assets management
CMP: 176
Sell on rise: 180-195
TGT: 155-136 (1-3M)
TSL>201
Note: Consecutive closing above 201 for any reason, BOB may scale up to 220-250 and in that scenario, sell position should be reversed.
Q2FY16 PAT of BOB tanked by around 89% (YOY) on higher provisions, worsening NPA and way below street estimates.
Q2 PAT was at around Rs.124 cr against consensus of around Rs.1088 cr. (YOY-1104 & QOQ-1052).
Q2 EPS was at 0.56 against expectations of 6.34 (YOY-5.14 & QOQ-4.76).
The huge miss in bottom line is due to sudden jump of 113% (YOY) & 215% (QOQ) in provisions for bad loans for around Rs.1892 cr (YOY-888 & QOQ-600).
The Q2 shocker disclosure of stressed assets & fresh slippages of around Rs.6816 cr against sequential figure of Rs.1685 cr is perhaps the one time cleaning work (legacy issues of bad & doubtful debts) by the new CEO (Ex-City Bank).
NII, too declined by around 4.6% to Rs.3244 cr (against estimate of Rs.3540; YOY-3401). Loan growth was also very tepid at around 7.55%, which is way below industry growth.
Q2 EBITDA grew only by 2.7% on YOY basis to Rs.2337 cr despite fall in employee cost.
In absolute terms, net NPA jumped 91% on YOY & 51% on QOQ basis to Rs.12798 cr in Q2FY16.
In Q2, BOB also "traced Rs.11 cr FX OW Remittance and a single loan fraud for Rs.374.48 cr and done 25% partial provision (11+93.59 cr) for the same. Rest of the 75% fraud loan provision will be done accordingly in the next 2 quarters.
The bank truly done the one time cleaning work of its system under the new CEO !!
Clearly Q2 numbers were much below market expectations in almost every parameters and the stock reacted initially by a huge 10% decline and then recovered smartly on new CEO's assurances about ROE and future stressed asset managements.
But, considering the heavy exposoure to some of the debt laden corporate groups (for example Essar steel) and continuing woes of metal (iron & steel) sector, in reality, the overall stressed situation might improve only after Q4FY16 as its top 20 accounts contribute nearly 75% of overall slippages.
The Q2 result of BOB also showed that our economy is perhaps not responding well and the recovery is in very nascent stage. The companies are also struggling and unable to service their huge debt too !!
The banking system, specially the PSBS, which are a mirror image of our economy is reflecting just that and although there is light at the end of tunnel, it may take another 2-3 quarters for it to be visible.
Q2FY16 PAT of BOB tanked by around 89% (YOY) on higher provisions, worsening NPA and way below street estimates.
Q2 PAT was at around Rs.124 cr against consensus of around Rs.1088 cr. (YOY-1104 & QOQ-1052).
Q2 EPS was at 0.56 against expectations of 6.34 (YOY-5.14 & QOQ-4.76).
The huge miss in bottom line is due to sudden jump of 113% (YOY) & 215% (QOQ) in provisions for bad loans for around Rs.1892 cr (YOY-888 & QOQ-600).
The Q2 shocker disclosure of stressed assets & fresh slippages of around Rs.6816 cr against sequential figure of Rs.1685 cr is perhaps the one time cleaning work (legacy issues of bad & doubtful debts) by the new CEO (Ex-City Bank).
NII, too declined by around 4.6% to Rs.3244 cr (against estimate of Rs.3540; YOY-3401). Loan growth was also very tepid at around 7.55%, which is way below industry growth.
Q2 EBITDA grew only by 2.7% on YOY basis to Rs.2337 cr despite fall in employee cost.
In absolute terms, net NPA jumped 91% on YOY & 51% on QOQ basis to Rs.12798 cr in Q2FY16.
In Q2, BOB also "traced Rs.11 cr FX OW Remittance and a single loan fraud for Rs.374.48 cr and done 25% partial provision (11+93.59 cr) for the same. Rest of the 75% fraud loan provision will be done accordingly in the next 2 quarters.
The bank truly done the one time cleaning work of its system under the new CEO !!
Clearly Q2 numbers were much below market expectations in almost every parameters and the stock reacted initially by a huge 10% decline and then recovered smartly on new CEO's assurances about ROE and future stressed asset managements.
But, considering the heavy exposoure to some of the debt laden corporate groups (for example Essar steel) and continuing woes of metal (iron & steel) sector, in reality, the overall stressed situation might improve only after Q4FY16 as its top 20 accounts contribute nearly 75% of overall slippages.
The Q2 result of BOB also showed that our economy is perhaps not responding well and the recovery is in very nascent stage. The companies are also struggling and unable to service their huge debt too !!
The banking system, specially the PSBS, which are a mirror image of our economy is reflecting just that and although there is light at the end of tunnel, it may take another 2-3 quarters for it to be visible.
Some analysts also cut the FY16-17 earnings of BOB by around 15% on account of higher estimates of bad loans and slower credit growth.
Although, the stock rallied over 25% from the recent Q2FY16 result day low assuming worst may be over for BOB as far its NPA is concerned, but as par management's own statement, next two quarters may be quite tough for it.
Technically, for BOB, 180-195 zone is a very strong resistance and only sustaining above that, it may scale further up to 220-250 zone.
For an investment perspective, 155-136 zone may be a safe area to accumulate it in the present market conditions, considering the low risk reward ratio as NPA may be peaking in the next two quarters for BOB/PSBS and Govt may unleash a slew of measures to improve capital structure & functioning of PSBS (by way of FDI, M&A & incorporating professional management).
As par BG metrics & current market parameters:
(Based on TTM & FWD EPS)
Present median valuation of BOB may be around: 157 (FY:15/TTM)
Projected fair valuations might be around: 150-190-220 (FY:16-18/FWD)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| BANKBARODA | 9.55 | 179.62 | 15 | 157.71 | 155.89 | 156.80 | 173.63 | 169.65 |
| BANKBARODA | 8.95 | 235.75 | 15 | 152.68 | 150.92 | 151.80 | 173.63 | 169.65 |
| BANKBARODA | 13.95 | 260.55 | 15 | 190.61 | 188.41 | 189.51 | 173.63 | 169.65 |
| BANKBARODA | 19.05 | 292.25 | 15 | 222.74 | 220.18 | 221.46 | 173.63 | 169.65 |
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