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BoB: Topline under pressure

Jun 5, 2002

Bank of Baroda has reported a strong 73% rise in pre tax profits on the back of its cost control initiatives. However, subdued interest income growth and pressure on interest margins depressed the overall performance of the bank

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Income from operations 14,339 15,303 6.7% 57,573 59,555 3.4%
Other Income 3,020 3,098 2.6% 7,063 9,932 40.6%
Interest expense 9,422 10,698 13.5% 38,196 40,761 6.7%
Net interest income 4,917 4,604 -6.4% 19,378 18,794 -3.0%
Other expenses 5,945 3,963 -33.3% 16,076 15,634 -2.8%
Operating Profit (1,028) 642 - 3,302 3,161 -
Operating Profit Margin (%)-7.2%4.2% 5.7%5.3% 
Provisions and contingencies 3,227 1,735-46.2% 5,767 5,136-10.9%
Profit before Tax (1,234)2,005- 4,598 7,95673.0%
Tax 311 937201.2% 1,851 2,49734.9%
Extraordinary items 265 - - 265 -  
Profit after Tax/(Loss) (1,281)1,067- 3,011 5,45981.3%
Net profit margin (%)-8.9%7.0% 5.2%9.2% 
No. of Shares (m) 294.3 294.3   294.3 294.3  
Diluted Earnings per share*-17.414.5 10.218.5 
P/E Ratio 3.6  2.8 

During the quarter, the bank managed to report a double digit growth in interest income on the back of an improvement in credit demand. This compared against a marginal 2% rise recorded by the bank in the first nine months of FY02. During the year, the bank total advances registered a healthy growth of 23%, better than its PSU peers in the industry. BoB's total deposits too increasted by 14%.

Contribution of fee based income to total income increased to 14% and treasury operations of the bank accounted for 43% of domestic income. The higher ratio was achievable due to favourable interest rates and active trading in the debt market. The bank could have to make provision for trading losses in the current year due to volatile government security prices. In FY02, the bank has transfeered Rs 2.2 bn to Invesment Flucuation Reserve to cushion against any future losses due to adverse movement in interest rates.

Income breakup
(Rs m)4QFY014QFY02ChangeFY01FY02Change
Interest on advances 7,392 8,262 11.8% 29,383 30,596 4.1%
Income from investments 5,062 6,003 18.6% 21,508 23,677 10.1%
Interest on balance with RBI 1,780 864 -51.4% 6,128 4,290 -30.0%
Others 105 173 65.4% 554 993 79.2%
Total 14,339 15,303 6.7% 57,573 59,555 3.4%

In FY02, BoB's effective tax rate declined to 31% from 40% in the previous year, as the bank has accounted for deferred tax assets which reduced its total tax provision by Rs 76 m. Excluding this and extraordinary adjustment of previous year (pertaining to investment fluctuation reserve), the bank's earnings are higher by 96%.

Among its IT initiatives, the bank has computerized 58% of its branch network, accounting for 77% of its business. The bank has also networked 300 branches in 7 citites and installed 40 ATMs across the country.

At the current market price of Rs 53, BoB is trading at a P/E of 3x and price to book value ratio of 0.4x. The bank's lower valuations are the result of its high NPA ratio of 5%. Although, the bank has reduced the ratio from 6.8% in the previous year, it still stands on the higher side. Also, relatively low level of computerization and subdued topline growth has trimmed its valuations.

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