Bank of Baroda (BOB) – A Good Buy?

Bank of Baroda (BOB) posted a weak set of March quarter numbers on Friday, which resulted in the stock prices plunging down on the bourses. The stock on Friday closed 6 per cent lower and today it extended its losses, trading lower by 1 per cent at Rs 680.15, almost losing 7 per cent in two trading sessions. The bank posted decent bottomline growth but faced headwinds when it came to key parameters like net interest margin (NIM) and on the asset quality front.

For the March quarter its net interest income (NII) increased marginally by 7 per cent to Rs 2,797 crore. This was on the back of higher cost of deposits and lower yield on advances. The global cost of deposit increased by 102 basis points to 5.81 per cent on a YoY basis while the yield on advances increased by 59 basis points to 9.33 per cent. BOB’s net profit increased by 17 per cent to Rs 1,518 crore.

The net interest margin (NIM) (global = domestic + overseas) and NPA showed a similar kind of worsening trend for the bank. The NIM decreased by 49 basis points to 2.96 per cent on a YoY basis. Further, the bank did not hold the margin on a sequential basis, which was surprising. On a QoQ basis its margin decreased by 3 basis points. The asset quality of the bank turned poorer still, which was least expected by the street. The net NPA increased by 19 basis points to 0.54 per cent while on a sequential basis it increased by 3 basis points. The capital adequacy ratio (CAR) of the bank almost remained at the same level of 14.67 per cent.

As on March 31, 2012 the deposits of the bank increased by 26 per cent to Rs 3,84,871 crore while the advances increased by 25.7 per cent to Rs 2,87,377 crore. As per the bank’s press release, its performance on the business front was way above the banking industry in the past three years.

The revenue, which increased by 41 per cent to Rs 2,380 crore, and the segment posted profit of Rs 792 crore against loss of Rs 45 crore in a similar period last quarter. The treasury segment posted good growth in bottomline which stood at Rs 548 crore against Rs 163 in a similar period last year. 

Now let us look at the full year’s financial numbers. The bank’s total income increased by 34 per cent to Rs 33,096 crore while the total expenditure increased by 38 per cent to Rs 24,465 crore.  BOB continued its higher provisioning trend through the year which led the provisions to increase by 91 per cent to Rs 2,554 crore. This led the net profit of the bank to post decent growth of 18 per cent to Rs 5,006 crore.

Overall, the bank felt some pressure in the last quarter of FY12. However, one can assume that the worst for the banking space is almost over and going ahead there will be good growth opportunities. The result was not good as per the market expectations but was also not too bad. The reversal of interest rate will benefit the bank in terms of posting healthy margins going ahead, also for the fact that it is the second-largest public sector bank after SBI.

On April 20 the bank informed the exchange that it has changed and reduced the base rate and deposit rate in the range of 25 to 50 basis points. The bank is available at a decent valuation which may help investors to garner better returns over a long run. The bank is available at a price to book value of 1.07 times and hence one can enter the scrip and invest in a staggering manner.