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Recommendations India

Bank of Baroda 4QFY2014 performance highlights and results update

May 20, 2014, Tuesday, 07:22 GMT | 03:22 EST | 11:52 IST | 14:22 SGT
Contributed by Angel Broking

Bank of Baroda’s operating numbers came in above our estimates, while the asset quality witnessed improvement qoq. The key highlights from of the results are a) moderate NII growth at 11.0% yoy (vs loan book growth of 21.0%), b) lower opex growth at 2.6% yoy due to higher base of employee expenses in 4QFY2013, c) domestic NIM contraction of 11bp qoq d) on the asset quality front, while slippages came in sequentially lower at Rs.1,295cr, incremental restructuring came in at Rs.1,157cr, which was in-line with Management guidance. Overall earnings grew by 12.5% yoy to Rs.1,157cr.

Business growth healthy; Asset quality reports improvement qoq: During 4QFY2014, the bank registered a healthy 21.3% yoy growth in its domestic loan book, while international advances grew by 20.2% yoy. SME advances grew by 21.2% yoy, while Retail loans grew at 21.0% yoy. Domestic CASA deposits witnessed a growth of 16.0% yoy. Overall, the domestic CASA ratio increased by 138bp yoy to 31.8%. Domestic NIMs for the bank decreased by 11bp qoq to 2.8% while the overseas NIMs decreased by 9bp to 1.1%. The bank reported a strong performance on the non-interest income (excluding treasury) front, with a growth of 37.0% yoy to Rs.1,237cr. Slippages came in lower as guided by Management at Rs.1,295cr (annualised slippage rate of 1.6%) against Rs.1,534cr in 3QFY2014 (annualised slippage rate of 1.9%). The Gross NPA ratio decreased by 38bp qoq to 2.9%, while the Net NPA ratio decreased by 36bp qoq to 1.5%. PCR for the bank increased 323bp qoq to 65.5%. During the quarter, the bank restructured global loans worth ~Rs.1,157cr against Rs.1,213 in 3QFY2014. As of 4QFY2014, the total outstandidng domestic restructured book stands at ~Rs.22,553cr, while the international restructured loan book stands at Rs.3,983cr. Going ahead, as per the Management, the restructuring pipeline for the bank stands at ~Rs.1,300cr. Going ahead, the Management has guided for a stable to improving asset quality on back of lower slippages and higher recoveries and upgrades.

Outlook and valuation: BOB has traditionally been an outperformer on the asset quality front and over the last two quarters it has delivered stable to improving asset quality. Moreover the bank’s Management expects the trend to continue. But at CMP, the stock trades at a valuation of 0.9x FY2016E ABV, ie at the higher end compared to its PSU peers. Hence we recommend a Neutral rating on the stock.