Bank of Baroda (Q2 FY13)

India Infoline News Service | Mumbai |

As expected, BOB’s advances were marginally up (2.2%) on sequential basis while representing a healthy growth of 22% on yoy basis.

CMP Rs783, Target Rs835, Upside 6.7%

  • Muted domestic loan growth in-line with expectations; CASA deterioration continued

  • NIM was stable but pressure could resurface in near term 

  • Fee growth remained disappointing; flat opex takes C/I ratio near 35%

  • Asset quality continues to surprise negatively; lower provisioning drives a PCR decline

  • Downgrade BV estimates by 2-4% and rating to MP

Result table
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 87,226 85,576 1.9 72,514 20.3
Interest expended (58,603) (57,595) 1.7 (46,845) 25.1
Net Interest Income 28,623 27,981 2.3 25,669 11.5
Other income 8,283 7,708 7.5 7,343 12.8
Total Income 36,906 35,689 3.4 33,013 11.8
Operating expenses (13,080) (13,157) (0.6) (11,613) 12.6
Provisions (6,464) (8,938) (27.7) (4,834) 33.7
PBT 17,362 13,594 27.7 16,566 4.8
Tax (4,223) (2,081) 103.0 (4,775) (11.6)
Adjusted PAT 13,138 11,513 14.1 11,791 11.4
Exceptional items (124) (124) - (130) -
Reported PAT 13,014 11,389 14.3 11,661 11.6
EPS 26.4 24.1 9.8 20.5 28.8

(Rs mn) Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) 2.7 2.7 (0.02) 3.1 (0.36)
Global yield on advances 9.1 9.1 (0.0) 9.6 (0.6)
Global yield on inv 7.8 7.7 0.1 7.6 0.2
Global cost of deposits 5.9 5.9 (0.0) 5.6 0.2
CASA (%) 31.7 32.2 (0.5) 34.0 (2.3)
C/D (%) 71.6 74.7 (3.1) 72.6 (1.1)
Non-interest income (%) 22.4 21.6 0.8 22.2 0.2
Cost to Income (%) 35.4 36.9 (1.4) 35.2 0.3
RoE (%) 18.0 16.3 1.7 20.8 (2.8)
RoA (%) 1.1 1.0 0.1 1.2 (0.1)
CAR (%) 12.9 13.7 (0.8) 12.7 0.2
Gross NPA (%) 2.0 1.8 0.1 1.4 0.6
Net NPA (%) 0.8 0.7 0.2 0.5 0.4
Source: Company, India Infoline Research; * Computed by us

Muted domestic loan growth in line with expectations

As expected, BOB’s advances were marginally up (2.2%) on sequential basis while representing a healthy growth of 22% on yoy basis. Growth in domestic advances was paltry 1.4% qoq contributed in majority by the 4% qoq expansion in retail loan portfolio. Yoy growth in domestic book was reasonably healthy at 17.5% as the bank typically increases assets in H2 of a fiscal. International advances continued to grow strongly (4% qoq/33% yoy) with its share in overall advances increasing to 32%. With the bank being cautious in expanding domestic balance sheet due to challenging credit conditions, it targets to grow 100-150bps ahead of the system in FY13.


Strong deposits growth; but CASA deterioration continues

Domestic deposits grew by strong 5.4% qoq/20% yoy. Growth in domestic CASA continued to be sluggish at 11% yoy, comprising of 13% yoy growth in savings deposits and a muted 6% yoy growth in the current account balances. Consequently, the domestic CASA ratio further declined to 31.7% from 32.2% in the previous quarter. BOB seems to have witnessed robust growth in retail TDs during the quarter. In our view, CASA ratio would improve in the longer term aided by softening of retail TD rates and improved maturity of branched added in rural/semi-urban during FY11/12. The bank has added 119 branches in H1 and plans to add 475 branches in H2.


NIM was stable but pressure could resurface in near term  

After having witnessed a sharp decline in the previous three quarters, BOB’s domestic NIM stabilized at 3.2% during Q2 FY13. There was marginal sequential increase in both the blended loan yield and cost of deposits. International NIM was also stable at 1.6%. In the medium term, NIM could remain under pressure with asset re-pricing happening faster than liabilities. 


Fee growth remained disappointing; flat opex takes C/I ratio near 35%

Fee growth continued to be weak at 3% yoy; it has been in the range of 2-4% in the past three quarters. We lower our fee growth assumption for FY13 to 7%, significantly behind the growth in balance sheet. Relatively lower currency volatility as compared to previous quarter led to marginally lower forex income (-5% qoq/24% yoy). Trading profit at Rs1.1bn was higher than Q1 FY13. Both the employee cost ad and other opex was flat sequentially driving an improvement in C/I ratio to 35%; probably the lowest in the industry indicating better operating efficiency of the bank.  


Asset quality continues to surprise negatively; lower provisioning drives a PCR decline

BOB’s asset quality deteriorated materially for the fourth consecutive quarter. Gross NPLs increased by 11% qoq on the back of elevated delinquencies (Rs14.7bn); slippage ratio stood at annualized 2% (1.8% in Q1 FY13, 1.9% in Q4 FY12 and 1.5% in Q3 FY12). Slippages were diversified and comprised relatively smaller accounts (Agri/SME); were more driven by cyclical factors as per the management and therefore carry higher chance of upgradation. BOB expects significant slippages to continue for some quarters. Restructuring in the domestic book was minimal during the quarter at Rs9.3bn (Rs7.7bn in Q1 FY13 and Rs83bn in FY12). Outstanding restructured assets stood at 8.4% for the domestic business and 4.7% in the international business. Despite hig

BSE 165.45 [0.10] ([0.06]%)
NSE 165.25 [0.60] ([0.36]%)

***Note: This is a NSE Chart

 

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