X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
BoB: Domestic business offers fillip - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

BoB: Domestic business offers fillip
Jan 30, 2009

Performance summary
  • Interest income grows by 29% YoY in 1HFY09, on the back of 33% YoY growth in advances.
  • Other income grows by 27% YoY backed by growth in fee income.
  • Net interest margins at 3.6% for domestic operation and 3.3% for global operations at the end of 9mFY09.
  • Net NPAs decline from 0.5% in 3QFY08 to 0.4% in 3QFY09.
  • Capital adequacy ratio comfortable at 13.2% (as per Basel II) at the end of 9mFY09.


Rs (m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Interest income 30,022 41,080 36.8% 84,824 109,528 29.1%
Interest Expense 20,047 26,462 32.0% 55,991 73,002 30.4%
Net Interest Income 9,975 14,618 46.5% 28,833 36,526 26.7%
NIM (%)       3.0% 3.3%  
Other Income 6,180 9,156 48.2% 14,964 19,042 27.3%
Other Expense 6,831 9,627 40.9% 21,656 25,561 18.0%
Provisions and contingencies 1,570 3,501 123.0% 3,965 7,523 89.7%
Profit before tax 7,754 10,646 37.3% 18,176 22,484 23.7%
Tax 2,744 3,562 29.8% 6,586 7,734 17.4%
Profit after tax / (loss) 5,010 7,084 41.4% 11,590 14,750 27.3%
Net profit margin (%) 16.7% 17.2%   13.7% 13.5%  
No. of shares (m)       365.5 365.5  
Book value per share (Rs)*         303.0  
P/BV (x)         0.9  
* (Book value as on 30th September 2008)

What has driven performance in 3QFY09?
  • A fillip in domestic advance growth, particularly SME and agriculture segments helped Bank of Baroda (BoB) grow its global advances by 33% in 9mFY09. The growth in overseas loan book was also at 39.5% YoY. The proportion of low cost deposits in the domestic portfolio, however, shrunk and was 36.1% of total deposits in 9mFY09. While the yield on domestic advances improved by 0.75%, that on overseas advances dropped by 0.9% YoY in 3QFY09. At the same time, the cost of domestic deposits increased by 0.5%, that on overseas deposits dropped by 0.7% YoY in the third quarter. Hence, with the cost arbitrage and its pricing power, the bank managed to improve its NIMs in both domestic and overseas businesses by nearly 0.3% in 9mFY09. Although BoB does not have exposure to high risk assets abroad, its overseas investments continue to remain subject to the volatility in interest rates. While the bank hopes to sustain the level of NIM at 3.0% in FY09, we have conservatively estimated at 2.5% for the full year.

    Taking advantage of cost arbitrage
      9mFY08 % of total 9mFY09 % of total Change
    Advances 955,163   1,271,991   33.2%
    Domestic 746,297   980,634   31.4%
    % of total 78%   77%    
    Agriculture 124,169 13.0% 156,205 15.9% 25.8%
    Retail 154,010 16.1% 188,046 14.8% 22.1%
    SME 107,277 11.2% 137,100 10.8% 27.8%
    Overseas 208,867   291,357   39.5%
    Deposits 1,368,636   1,686,160   23.2%
    Domestic 1,123,586   1,365,157   21.5%
    % of total 82%   81%    
    CASA 433,704 38.6% 492,822 36.1% 13.6%
    Term deposits 689,882 61.4% 872,335 63.9% 26.4%
    Overseas 245,050   321,003   31.0%

  • After having stagnancy in its fee revenues over several quarters, BOB seems to have finally drawn focus on this counter to shield its profits from getting eroded by the lower NIMs and treasury losses. Fee income backed by growth in commissions and forex income grew by 35% to form 11% of total income at the end of 9mFY09. The bank currently has 75.4% of investments in the HTM basket.

  • The bank’s cost to income ratio dropped from 49% in 9mFY08 to 46% in 9mFY09 due to the implementation of core banking solution at 94% of branches and natural attrition.

  • The net NPAs declined from 0.5% of total advances in 9mFY08 to 0.4% in 9mFY09. More importantly, the growth in cash recoveries substantially reduced the provisioning requirement for the bank in 9mFY09. The NPA coverage ratio stood at a comfortable 75% at the end of 9mFY09. Gross NPAs in the retail and housing segments were 2.8% and 3.4% respectively.

  • BoB is targeting an overall business growth of 25% in FY09 and FY10, while growing its fee based income by atleast 20% YoY.

What to expect?
At the current price of Rs 251, the stock is valued at 0.6 times our estimated FY11 adjusted book value. The bank has marginally outperformed our broad asset growth and margin estimations so far in FY09. While we draw comfort from the bank’s adequate capital and high provisioning cover, low fee income proportion and exposure to overseas markets during a tight liquidity scenario are our concerns with regard to the bank. We maintain our positive view on the stock.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

BANK OF BARODA SHARE PRICE


Feb 20, 2018 (Close)

TRACK BANK OF BARODA

  • Track your investment in BANK OF BARODA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON BANK OF BARODA

BANK OF BARODA 8-QTR ANALYSIS

COMPARE BANK OF BARODA WITH

MARKET STATS