BOB: Growth challenges remain - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


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

BOB: Growth challenges remain

Aug 12, 2003

Bank of Baroda (BOB) reported a relatively better start for FY04 (compared to 4QFY03) in its June quarter results. The bank reported a 34% growth in its bottomline, on the back of a topline growth of over 5% in the June quarter on a YoY basis. A significant fall in interest expenses and a sustained growth in other income arising from sale of investments has ensured yet again that the bottomline grows at a healthy rate. The bank has also done well to control costs, thus improving upon its operating margins.

(Rs m)1QFY031QFY04Change
Income from Operations 15,058 15,869 5.4%
Other Income 1,883 2,101 11.6%
Interest Expenses 9,972 9,224 -7.5%
Net interest income 5,086 6,645 30.6%
Other Expenses 3,797 4,096 7.9%
Operating Profit 1,290 2,548 97.6%
Operating Profit Margin (%)8.6%16.1% 
Provisions and Contingencies 620 1,01463.6%
Profit before Tax 2,552 3,635 42.4%
Tax 724 1,19064.4%
Profit after Tax/(Loss) 1,828 2,445 33.7%
Net Profit Margin (%)12.1%15.4% 
No. of Shares (m) 294.3 294.3  
Diluted Earnings per share (Rs)24.833.2 
P/E Ratio (x) 3.4 

The bank has indicated that its advances have grown by a marginal 4% in the June quarter compared to the same period last year. This indicates pressure on the bank's business growth. In FY03 also the bank faced pressure on this front where the advances grew by a marginal 5%. The new generation private sector banks are slowly capturing markets historically held by public sector banks. That said, falling interest rates helped BOB to mitigate the effect of poor topline. Due to lower interest expenses, the bank has been able to post a net interest income growth of 31% in 1QFY04. Due to the growth in net interest income, net interest margins (NIM) also seem to have improved over 1QFY03 levels. NIM in FY03 stood at 2.9% compared to 2.8% in FY02. However, we must also point out that due to a soft interest rate scenario, further improvement in NIM may be an uphill task and it may stagnate at this level.

BOB has also been able to improve its operating efficiencies, thus helping it further improve its operating profits as well as margins. Due to lack of need for setting up new branches (unlike private sector banks), costs seem to have been controlled. However, going forward, due to the needs of integrating a large branch network and setting up an ATM network, the operating costs of the bank are likely to go up. But the increase in costs are not likely to significantly impact the operating margins of the bank.

Apart from improvement in operating parameters, BOB, like most other public sector banks, has been positively impacted by strong growth in other income, mainly due to profit from sale of investments. While the breakup of other income has not been specified by the company, we believe that most of the other income would have been derived from profit from sale of investments. BOB had stated that it has close to Rs 30 bn in un-booked profits on its G-Sec portfolio and with the interest rates remaining soft, we are likely to see sustenance of this level of other income going forward.

The stock at Rs 131 is trading at an adjusted price to book ratio of 1.3x. Bottomline performance of the bank has been robust in 1QFY04, however, its topline performance has been a disappointment. Both, private sector as well as public sector peers seem to be eating into the market share of the bank. What is however disturbing is the fact that despite having a huge branch network, the bank has not been able to garner a larger share of the incremental advances given out by the banking sector. BOB has however done well to bring down its NPA levels (3.8% currently compared to 5.5% in the same period last year). This is likely to find favour among investors

Going forward, the biggest challenge for the bank is to integrate its large branch operations as well as reorient its employees to the new competitive realities in the Indian banking sector. Integration will bring further efficiencies in the operations of the bank, which is likely to lead to stronger business growth going forward.

Equitymaster requests your view! Post a comment on "BOB: Growth challenges remain". Click here!


More Views on News

BANK OF BARODA Announces Quarterly Results (1QFY22); Net Profit Up 279.8% (Quarterly Result Update)

Aug 9, 2021 | Updated on Aug 9, 2021

For the quarter ended June 2021, BANK OF BARODA has posted a net profit of Rs 12 bn (up 279.8% YoY). Sales on the other hand came in at Rs 180 bn (down 7.7% YoY). Read on for a complete analysis of BANK OF BARODA's quarterly results.

Bank of Baroda Shares Plunge 5% After Reporting Huge Loss (Views On News)

May 31, 2021

The stock fell after the bank posted a loss due to higher tax expenses.

7 Stocks that Mutual Funds Can't get Enough of (Views On News)

Dec 1, 2021

Come hell or high water, these are the top Indian stocks which mutual funds never leave.

5 Indian Banks with the Lowest NPAs. Here's How they Did It... (Views On News)

Sep 27, 2021

These banks have managed to maintain their asset quality even in the middle of a pandemic.

PNB Reports an Over Three-Fold Jump in Net Profit as Provisions Fall (Views On News)

Aug 3, 2021

The reduction in provisions for bad loans and asset quality stability may have aided the lender's earnings.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 9, 2021 (Close)


  • 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