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Bank of Baroda 3QFY2014 performance highlights and results update

February 12, 2014, Wednesday, 07:37 GMT | 02:37 EST | 13:07 IST | 15:37 SGT
Contributed by Angel Broking


Bank of Baroda’s reported operating numbers slightly above estimates. Key highlights from the results were a) moderate NII growth at 7.6% yoy (vs. loan book growth of 17.7%), b) Opex growth remained higher at 25.7% yoy, c) on the asset quality front, while slippages came in sequentially lower at Rs.1,533cr, incremental restructuring came in at Rs.1,213cr, which was lower than ours and streets’ expectations, and d) Tax expense increased by 83.7% yoy (on back of Rs.272cr deferred tax liability for special reserve created during quarter), thereby limiting the earnings growth to modest 3.6% yoy, despite PBT growth of 17.0% yoy.
 
Domestic NIMs improve qoq; Asset quality reports stability: During 3QFY2014, the bank registered a healthy 18.1% yoy growth in its domestic loan book, while international advances grew by 17.0% yoy (aided by INR depreciation). SME advances grew by 39.2% yoy (due to reclassification of advances), while Retail loans grew at 20.9% yoy. Domestic CASA deposits witnessed a growth of 15.6% yoy. Overall, the domestic CASA ratio increased by 5bp yoy to 32.3%. Domestic NIMs for the bank increased by 10bp qoq to 3.0%, while overseas NIMs remained largely stable at 12%. The bank reported a moderate performance on the noninterest income (excluding treasury) front, with a growth of 14.2% yoy to Rs.805cr, on back of moderate growth of 9.1% yoy in core-fee income to Rs.321cr. On the asset quality front, while slippages came in lower sequentially (in-line with management’s guidance) at Rs.1,533cr as against Rs.2,017cr in 2QFY2014.
 
Recoveries and upgrades came at Rs.495cr as against quarterly average of Rs.300cr over last four quarters. Gross NPA ratio increased by 17bp qoq to 3.3%, while the Net NPA ratio increased by 2bp qoq to 1.9%. PCR for the bank increased 54bp qoq to 62.2%. Going ahead, the Management has guided for stable to improving asset quality on back of lower slippages and higher recoveries and upgrades. During the quarter, the bank restructured total loans worth ~Rs.1,213cr against Rs.1,637 in 2QFY2014. As of 3QFY2014, the total o/s restructured book stands at ~Rs.26,400cr. Going ahead, as per the Management, the restructuring pipeline for the bank stands at ~Rs.1,500cr.
 
Outlook and valuation: BOB has traditionally been an outperformer on the asset quality front, however, over the last one year; it has witnessed higher asset quality pressures. The bank’s management have guided for stable to improving trend on asset quality here on. However, we remain watchful on incremental asset quality pressures for the bank, in the near term, as negative surprises on the asset quality still cannot be entirely ruled out. At CMP, the stock trades at valuations at 0.6x FY2015E ABV. With expectations of rate cycle reversal in next fiscal, from a medium term perspective, we recommend Accumulate rating on the stock, with a target price of Rs.673.