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Bank of Baroda: No respite in NPAs - Views on News from Equitymaster
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Bank of Baroda: No respite in NPAs
Mar 12, 2015

Bank of Baroda (BOB) declared its results for the third quarter of financial year 2014-2015 (3QFY15). The bank has reported 7.5% YoY growth in net interest income and 68.1% fall in net profits for the quarter. Here is our analysis of the results.

Performance summary
  • Net interest income grew by 7.5% YoY in 3QFY15 due to muted growth in interest income. For 9MFY15, the net interest income (NII) grew by 13.3% YoY.
  • Other income increased by 17% YoY in 3QFY15 but for 9MFY15, the other income was down by 1% YoY.
  • Global NIMs fall from 2.4% in 9mFY14 to 2.2% during 9MFY15.
  • Operating costs increased by 13.7% YoY in 3QFY15 and by 13.4% YoY in 9MFY15.
  • Gross NPAs have gone up from 3.32% (3QFY14) to 3.85% (3QFY15) and Net NPAs have gone up from 1.88% in 3QFY14 to 2.11% in 3QFY15.
  • Due to a steep jump provisioning and tax outgo, net profit fell by 68.1% YoY in 3QFY15 and fell by 17.3% YoY for 9MFY15.
  • Capital adequacy ratio (Basel III norms) stands at 12.42% at the end of 3QFY15

Financial Performance Snapshot
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Interest Income 96,907 107,180 10.6% 286,511 322,016 12.4%
Interest expense 66,336 74,319 12.0% 198,101 221,861 12.0%
Net interest income 30,571 32,861 7.5% 88,410 100,156 13.3%
Net interest margin (%)       2.4% 2.2% -0.2%
Other income 9,321 10,904 17.0% 31,365 31,065 -1.0%
Other Expense 17,917 20,375 13.7% 52,038 59,005 13.4%
Provisions & Contigencies 7,619 12,623 65.7% 26,406 26,770 1.4%
Extraordinary item (156) -   (467) -  
Profit before tax 14,201 10,768 -24.2% 40,865 45,446 11.2%
Tax 3,722 7,428 99.6% 7,027 17,445 148.3%
Profit after tax/(loss) 10,478 3,340 -68.1% 33,838 28,001 -17.3%
Net profit margin (%) 10.8% 3.1% -7.7% 11.8% 8.7% -3.1%
No. of shares (m)         2,147.1  
Book value per share (Rs)*         182.1  
P/BV (x)         0.99  
* Book Value as on 31th December 2014

What has driven performance in 3QFY15?
  • Credit offtake at 11.7% YoY was lower compared to deposit growth at 12.1% YoY for the quarter. As a result the credit deposit ratio fell to 69.7% in 3QFY15 from 70% in 3QFY14.

    Growth in advances remain slow
    Rs (m) 3QFY14 3QFY15 Change (%)
    Advances 3,524,462 3,936,305 11.7%
           
    Deposits 5,037,718 5,645,997 12.1%
           
    Credit Deposit Ratio 70.0% 69.7%  

  • The growth in interest income at 10.6% YoY was lower than the 12% increase in interest expense for the quarter. The muted growth in the interest income was due to a growth of just 8.3% YoY in wholesale banking operations. Resultantly, the net interest margins fell by 0.2% YoY

  • The 7.5% YoY growth in net interest income failed to percolate to net profits due to a big jump in tax outgo as well as higher provisioning. The tax outgo jumped 99.6% YoY in the quarter. The tax incidence shot up to 69% in 3QFY15 from 26% in 3QFY14. The provisions and contingencies increased by 65.7% YoY with the provision coverage ratio at 62.37% for the quarter.
What to expect?
At the current price of Rs 180, the stock is valued at 0.8 times our estimated FY17 adjusted book value.

Given the asset quality concerns, we reiterate the view that investors should not buy the stock at current levels.

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