"Core PPOP continues to contract: While headline PAT has been aided by treasury profit of Rs4.1bn, core PPOP for BOB continues to contract (down 6 percent YoY) as NIM disappoints further and opex growth continues to remain elevated. (1) Domestic margins continue to remain under pressure (down 10bps QoQ) due to a mix of lower rates to SME, interest reversals on higher NPAs and falling LDRs - LDRs remain a lever for margins but tough liquidity is likely to restrict NIM improvement (2) With higher wage and pension provisions, opex jumped ~27 percent YoY taking core cost‐income to ~45 percent and with aggressive branch expansion and possible pension shortfalls, we do not expect any respite."
"Slippages were higherthanexpected at Rs21bn, largely driven by Rs19bn domestic slippages with four bulky exposures aggregating to Rs7-8bn. Incremental restructuring at Rs20bn was also high. NPA coverage has been steadily coming off and we would have been encouraged if management used treasury profits to shore up coverage. With the recent tightening + weak macros, delinquency pace is unlikely to come off substantially and we factor in ~120bps of credit costs."
"BOB's NIM contraction has been the sharpest (50-60bps) in the last two years and that led to ~50bps contraction in core PPOP to 1.6-1.7 percent which is similar to BOI/Union and much lower than PNB at 2.1-2.2 percent. This contraction restricts BOB's ability to provide for bad loans and hence, with ~120bps of credit costs, ROAs now is just 5-10bps higher than BOI/Union now. With lower earnings and lower multiple (0.8x sep-14 book) we, thus, cut our PT to Rs600/share and maintain accumulate," says Prabhudas Lilladher research report.
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