Bank of Baroda (Q1 FY15)

India Infoline News Service | Mumbai |

BOB’s domestic loan growth marginally moderated in Q1 FY14 to 19% yoy from 21% yoy in the previous quarter.

CMP Rs860, Target Rs920, Upside 7.0% 
  • Domestic loan growth marginally moderates but remains much higher than system

  • Both Domestic and International NIM improve by 10bps qoq; NII growth at multi-quarter high 

  • Fee growth weakens; modest opex growth limits deterioration in cost/income ratio

  • Influx of impaired assets was marginally higher; PCR improves further to 67% 

  • RoA improvement trajectory unchanged; but near-term upside capped, rate Accumulate 

Result table
(Rs mn) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Total Interest Income 106,580 102,886 3.6 94,869 12.3
Interest expended (73,297) (71,643) 2.3 (65,978) 11.1
Net Interest Income 33,283 31,243 6.5 28,891 15.2
Other income 10,245 13,263 (22.7) 12,306 (16.7)
Total Income 43,529 44,506 (2.2) 41,197 5.7
Operating expenses (18,733) (18,710) 0.1 (16,680) 12.3
Provisions (5,267) (11,532) (54.3) (10,179) (48.3)
PBT 19,529 14,264 36.9 14,338 36.2
Tax (5,910) (2,536) 133.1 (2,503) 136.1
Adjusted PAT 13,619 11,728 16.1 11,834 15.1
Exceptional items - (156) - (156) -
Reported PAT 13,619 11,573 17.7 11,679 16.6
EPS 31.6 27.2 16.1 28.0 12.9

Key  Ratios Q1 FY15 Q4 FY14 chg qoq Q1 FY14 chg yoy
NIM (%) 2.4 2.3 0.06 2.4 (0.06)
Global yield on advances 8.3 8.2 0.2 8.5 (0.2)
Global yield on inv 7.9 7.8 0.1 7.8 0.1
Global cost of deposits 5.2 5.3 (0.1) 5.6 (0.4)
Domestic CASA (%) 31.3 31.8 (0.4) 31.2 0.2
C/D (%) 69.2 69.8 (0.6) 68.8 0.4
Non-interest income (%) 23.5 29.8 (6.3) 29.9 (6.3)
Cost to Income (%) 43.0 42.0 1.0 40.5 2.5
Ann Credit Cost (%) 0.8 0.7 0.1 0.8 (0.0)
PCR (%) 66.7 65.5 1.2 63.6 3.0
Gross NPA (%) 3.1 2.9 0.2 3.0 0.1
Net NPA (%) 1.6 1.5 0.1 1.7 (0.1)
Source: Company, India Infoline Research
 

Domestic loan growth marginally moderates but remains much higher than system

BOB’s domestic loan growth marginally moderated in Q1 FY14 to 19% yoy from 21% yoy in the previous quarter. Growth in domestic advances (68% of total advances) after having improved over the past few quarters remained strong at 20%. SME credit (22% yoy), home loans (22% yoy) and credit to weaker sections (28% yoy) continued to grow ahead of the overall loan book. Bank intends to grow its domestic advances marginally faster than the system in the current fiscal without taking undue risks. Apart from the sluggish macro environment, weak capitalization (Tier-1 at 9.3% under Basel II) would act as constraint to faster growth in the medium term. We expect BOB’s loan book to witness 19% CAGR over FY14-16. 

Both Domestic and International NIM improve by 10bps qoq; NII growth at multi-quarter high 

Domestic deposits continue to grow significantly behind advances at 13% yoy but the franchise improved. During Q1, FY15, the Bank did not raise any high-cost preferential rate deposits in its domestic operations; even the share of CDs to Term Deposits fell from 7.5% at the end of FY14 to 4.0% at end Q1 FY15. Domestic CASA ratio was stable at above 31% despite sequential steep 20% decline in current deposits. Traction in domestic savings deposits remained strong at 14% yoy.

As against our expectation of stable margin, domestic NIM of the bank improved by 10bps qoq to 2.94%. The margin expansion was almost equally contributed by increase in blended lending yield (likely driven by improving share of SME advances) and a decline in cost of deposits (driven by improved mix). BOB expects its domestic NIM to improve to 3% by the end of the fiscal. International NIM also improved by 10bps qoq to 1.2% aided by similar increase in the yield on advances. Bank’s NII grew by better-than-expected 15% yoy, an eight-quarter high.

Fee growth weakens; modest opex growth limits deterioration in cost/income ratio

Overall fee growth moderated to 7% yoy (15% yoy in Q4 FY14) on the back of growth deceleration in CEB income (10% yoy). Trading gains were much lower yoy at Rs2.24bn (Rs4.1bn in Q1 FY14) while forex profits were flat yoy at Rs2.6bn Opex growth was modest at 12% yoy thereby containing the slippage in cost/income ratio despite the sharp 17% decline in non-interest income. In the longer term, cost/income ratio is likely to improve materially aided by revival in NII and fee growth and better treasury performance. 

Influx of impaired assets was marginally higher; PCR improves further to 67% 

BOB’s slippages came in at Rs19bn, much higher than our expectation of Rs13-14bn which was conditioned by bank’s confidence of sustaining lower delinquencies witnessed in previous quarters. The annualized delinquency ratio stood at 1.9% breaking the moderating trend seen over the previous two quarters. However, lower restructuring during the quarter at Rs9.8bn was a positive thus limiting the addition of impaired assets to Rs28.7bn (Rs24.5bn in Q4 FY14). Of the slippages during the quarter, Rs4.9bn was from standard restructured portfolio. In the domestic book, outstanding standard restructured portfolio stood at 8% of advances. Restructuring pipeline also remains modest at Rs10bn over coming quarters. BOB utilized Rs3.2bn provisioning reversal on its investment portfolio (on account of buoyant capital markets) towards making higher provisions on NPLs (annualized credit cost at 80 bps) thus improving its PCR sequentially from 65% to 67%.


RoA to improve over FY14-16; near-term upside capped, rate Accumulate 

Improvement in cost/income ratio and moderation in credit cost should drive a material recovery in RoA from 0.75% in FY14 to 0.9% in FY16. We continue to be relatively bullish on BOB among the PSU Banks given its better growth and asset quality outlook. However, given the massive appreciation in the stock price over the past few months, incremental re-rating is likely to be gradual. Rate Bank of Baroda as Accumulate with a 9-12 month price target of Rs920. 


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Total operating income 149,459 164,281 191,145 230,222
yoy growth (%) 8.8 9.9 16.4 20.4
Operating profit (pre-prov) 89,992 93,532 111,199 137,485
Net profit 44,807 45,411 57,543 76,556
yoy growth (%) (10.5) 1.3 26.7 33.0
EPS (Rs) 106.0 105.4 133.6 177.8
Adj. BVPS (Rs) 631.3 671.6 751.9 876.7
P/E (x) 8.1 8.2 6.4 4.8
P/BV (x) 1.4 1.3 1.1 1.0
ROE (%) 15.7 13.8 15.5 18.1
ROA (%) 0.9 0.75 0.81 0.91
Dividend yield (%) 2.9 2.5 3.0 3.8
CAR (%) 13.3 12.3 11.1 10.4
Source: Company, India Infoline Research
 

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.