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Recommendations India

Bank of Baroda 1QFY2015 performance highlights and results update

August 6, 2014, Wednesday, 10:21 GMT | 06:21 EST | 14:51 IST | 17:21 SGT
Contributed by Angel Broking

For 1QFY2015, Bank of Baroda (BOB) reported a PAT of Rs.1,362cr, a growth of 16.6% yoy. The key highlights from the results are a) Total advances grew by 18.8% yoy, led by a 20% yoy growth in domestic advances; b) Net Interest Income higher by 15.2% yoy on account of lower domestic cost of deposits; c) Provision coverage ratio improved by 123bp from 65.5% in 4QFY2014 to 66.7% in 1QFY2015; d) On the asset quality front, slippages came in sequentially higher at Rs.1,881cr as against Rs.1,295cr in 4QFY2014.

Healthy growth in business; NIM stable qoq: During the quarter, the loan book and deposits grew faster than the system, by 18.8% and 18.1% yoy respectively. Retail, SME, and Credit to Weaker Sections segments witnessed a strong yoy growth of 17.2%, 22.0% and 27.9% respectively. The overseas business contributed 33.1% to the bank’s total business, with 53.4% of total overseas loan book coming from Buyers’ Credit/BP/BD. CASA deposits grew by 17.3% yoy with overseas CASA deposits growing by 40.9% yoy during the quarter; as a result, the CASA ratio stood steady at 25.1% as against 25.3% in 1QFY2014. NIM improved slightly by 6bp to 2.35% aided by uptick in domestic NIM, as continued focus in reducing high cost deposits and increase in retail deposits reduced the cost of deposits from 5.6% in 1QFY2014 to 5.2% in 1QFY2015. The Management aims to improve domestic NIM to 3% by FY2015. The Gross and Net NPA ratios increased to 3.1% (up by 17bp qoq) and 1.6% (up by 6bp qoq), respectively. During the quarter, the bank restructured global loans worth Rs.986cr against Rs.1,157cr in 4QFY2014. As of 1QFY2015, the total outstanding restructured book stands at Rs.22,832cr. Going ahead, as per the Management, the restructuring pipeline for the bank stands at Rs.1,000cr.

Outlook and valuation: BOB has traditionally been an outperformer on the asset quality front and over the last two quarters it has delivered stable asset quality. Moreover the bank’s Management expects the trend to continue. At CMP, the stock trades at a valuation of 0.9x FY2016E ABV and with economy expected to revive in near future, the bank is well positioned to grow at a faster pace. Hence we recommend a Buy rating on the stock.