Author: CP

While BOB’s 1QFY10 profits were up 85% YoY, well ahead of our 48% expectation, they did disappoint. The primary drivers of the beat were trading gains (pretty common in the quarter) and equity/offshore portfolio write-back (less common in the quarter). The
profit camouflages core P&L pain, whereas a simple reading of the results does
not. The BS does feel a bit of strain too, but did a little better than expectations.

Margins for the sector have suffered a little ahead of expectations. BOB’s are down almost 32bps YoY (48 bps QoQ) and it appears to be among those that have suffered most. Fee incomes have also been relatively wobbly, culminating in pre-provisioning operating profits falling 24% QoQ (up only 7% YoY). This is disappointing, and while management expects a reversal in the rest of the year, it will likely be of modest means relative to the quarters hit.

With management suggesting a relatively cautious outlook, the stock only looking moderately attractive on valuation, and no real big directional upside/downside.

Showing the impact of economic slowdown, the net direct tax collections during first three months of the fiscal registered a marginal growth of 3.65%. The government said in a statement that collections in the April-June period stood at Rs.59,465 crore, up from Rs.57,373 crore in the same period last fiscal.

At the disaggregate level, growth in Corporate Taxes was 3.31% (Rs.35,709 crore as against Rs.34,566 crore), while Personal Income Tax (including FBT and STT) grew at 4.38% (Rs.24,564 crore as against Rs.22,782 crore).

Lower growth in net tax collection was mainly on account of higher tax refund outgo of 52.01% at Rs.17,600 crore in the present quarter as against Rs.11,578 crore in the first quarter last fiscal, according to the government.

Fringe Benefit Tax (FBT) recorded a negative growth of 7.56% (Rs.1,031 crore as against Rs.1,115 crore) and Securities Transaction Tax (STT) declined by 9.90% (Rs.1,462 crore as against Rs.1,623 crore) compared to the corresponding period last fiscal.

During the month of June, net collection during stood at Rs.35,307 crore compared to net collection of Rs.34,533 crore during June 2008. Growth in Corporate TDS was 12.1% (Rs.19,584 crore against Rs.17,477 crore last year) and non-government PIT TDS growth was 12.4% (Rs.21,188 crore against Rs.18,849 crore last year) over the month of June.