Share Trading Tips

Karvy Stock Broking has come out with a research report on Bank of Baroda. The research firm has recommended under performer rating on the stock, with a target price of Rs 450.

“The announcement by Dubai World of its deferment of the loan repayments by its real estate subsidiary, Nakeel could have an adverse impact on Bank of Baroda which has a direct exposure on Dubai World. Our scenario analysis reveals that our FY2010 EPS could be reduced by 14% to Rs 65.9 and our ABV could reduce by 6% to Rs 286. We are currently retaining our estimates as there may be a possibility that Abu Dhabi may launch a rescue of Dubai’s debt stricken, sovereign-backed corporate entities”, says Karvy Stock Broking.

The report also says, “Although BOB states that all its exposure in Dubai and in the UAE is sound, the credit rating downgrade of all the six state-back entities in Dubai and some to junk status has changed the entire credit scenario in Dubai and in the UAE. We believe that BOB would have to mark down its US$200mn Dubai World exposure by around 60% in future as this would reflect the economic value of the underlying asset. Such a mark down may not be immediately visible if the exposure were to be restructured but we believe that if Abu Dhabi does not bailout Dubai, BOB would have to provide Rs5.76bn for its Dubai World exposure. If the Rs5.76bn were to be provided for in FY2010, our EPS estimate would be revised down by 14% to Rs65.9 from Rs76.5 and our ABV (100% write-off of net non-performing loans and restructured standard loans) to Rs286 from Rs303. The next week would be critical as some sections of the market expect Abu Dhabi to announce a bail-out for the debt stricken Dubai entities but if that fails, BOB and other Indian banks may have to mark down its entire UAE exposure.”