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BoB: Lacking growth

Aug 14, 2002

Bank of Baroda (BoB) has reported a dismal performance for the quarter ended June 2002. The bank's interest income and profits remained flat compared to the corresponding quarter in the previous year. Its operating margins also slipped steeply on account of increase in interest cost.

(Rs m)1QFY021QFY03Change
Income from operations 15,004 15,058 0.4%
Other Income 1,770 1,883 6.4%
Interest expense 9,447 9,972 5.6%
Net interest income 5,557 5,086 -8.5%
Other expenses 3,701 3,797 2.6%
Operating Profit 1,857 1,290 -30.5%
Operating Profit Margin (%)12.4%8.6% 
Provisions and contingencies 1,150 620-46.1%
Profit before Tax 2,476 2,5523.1%
Tax 650 72411.4%
Profit after Tax/(Loss)1,8261,8280.1%
Net profit margin (%)12.2%12.1% 
No. of Shares (m) 294.3 294.3  
Diluted Earnings per share*24.824.8 
P/E Ratio 2.0 
*(annualised)   

During the quarter, BoB's interest income from advances witnessed a 6% rise, as against a marginal 4% increase for FY02. This could be due to some revival in the bank's advances portfolio. Investment income too showed healthy growth of 15%. However, lower interest income from RBI and from call money markets depressed the bank's total interest income.

Income breakup
(Rs m)1QFY021QFY03Change
Interest on advances 7,381 7,853 6.4%
Income from investments 5,504 6,336 15.1%
Interest on balance with RBI 1,493 751 -49.7%
Others 626 118 -81.1%
Total 15,004 15,058 0.4%

The bank's fee based income also grew at a slower pace, accounting for 11% of total income as against 14% for the full year ended March 2002. With volatile bond markets, the bank seem to have booked trading losses in its government securities investments. In FY02, the bank had already transferred Rs 2.2 bn to investment fluctuation reserve to cushion against any future losses due to adverse movement in interest rates. Decline in net interest income and lower other income resulted in an increase in cost to income ratio to 55% in 1QFY03 from 51% in 1QFY02.

Among other new developments, the bank has amalgamated Benaras State Bank Ltd.(BSBL) with effect from July 19, 2002. Consequently, the above results do not reflect data relating to business of BSBL. In the coming quarters, BoB's financial performance could get impacted as BSBL is a sick bank.

At the current market price of Rs 51, BoB is trading at a P/E of 2x 1QFY03 annualised earnings and price to book value ratio of 0.4x. The bank's lower valuations are the result of its decision to merge with BSBL. Also, relatively low level of computerization and subdued financial performance has trimmed its valuations.

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