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BOB: Nothing unusual

Jul 27, 2001

Bank of Baroda (BOB) has reported a 20% growth in profits led by a similar growth rate in other income. Excluding the charge for VRS expenses, earnings of the bank were actually higher by 50%.

(Rs m)1QFY011QFY02Change
Interest Income 14,108 15,004 6.4%
Other Income 1,432 1,770 23.6%
Interest Expenditure 9,357 9,447 1.0%
Operating Profit (EBDIT) 4,751 5,557 17.0%
Operating Profit Margin (%)33.7%37.0%
Other Expenditure 3,365 3,263 -3.0%
Profit before Tax2,8184,06444.2%
VRS expenses - 438
Provisions & Contingencies 596 1,150 93.1%
Tax 704 650 -7.7%
Profit after Tax/(Loss) 1,518 1,826 20.3%
Net profit margin (%)10.8%12.2%
No. of Shares (eoy) 294 294
Diluted Earnings per share*20.624.8
P/E (at current price)1.7

During the quarter, the bank's operating margins moved up by over 300 basis points to 37%, which are amongst the highest in the banking sector. Reduction in the deposit rates fueled the growth in operating profits.

Although, BOB's other income increased by 23%, growth in interest income was a dismal 6%. This could be due to poor credit offtake during the quarter. Excess liquidity in the markets due to the slowdown in the industrial activity is likely to pressurize its interest income and operating margins in the coming quarters.

Other expenses of the bank were lower as a result of VRS launched by it last year. Cost to income ratio of the bank came down to 45% from 54% in 1QFY01. The total cost of VRS was Rs 8.5 bn out of which BOB has already written off Rs 1.7 bn in FY01. The bank will write off the balance amount equally in the 4 years and consequently, in the June quarter it has provided for Rs 438 m on a pro-rata basis.

In the current quarter, BOB increased the provisioning amount for non-performing assets to Rs 1.2 bn. Due to the change in the norm for classification of NPAs by the RBI, gross NPAs of the bank in FY02 are expected to go up by 19%. The bank's NPA ratio stood at 6.8% in FY01. The ratio is likely to remain at the same level in FY02, unless the provisioning coverage is increased (currently 56%).

At the current market price of Rs 42 BOB is trading at a P/E of 2x and Price/Book value ratio of 0.4x 1QFY02 annualised earnings.

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