BoB’s Q2 Numbers Marred By Higher Expenses, NPAs

Bank of Baroda (BoB) has announced a disappointing set of numbers for the second quarter. Surprisingly, the stock moved up by more than 10% on October 31, the day of the results announcement.

The bank's total income came in at Rs 104.47 crore in Q2FY14, up 9.39% on a yearly basis from that of Rs 95.51 crore in Q2FY13. However, its net profit was down 10.24% to Rs 11.68 crore during reported quarter against Rs 13.01 crore in Q2FY13 due to 33.17% higher provisions YoY.

Despite good growth in its topline, the bank’s Net Interest Income (NII) grew by just 1.14% to Rs 28.95 crore in Q2FY14 against Rs 28.62 crore in the same quarter last year. This was because its major cost – i.e. interest expended – grew by 12.26%. Further, the employee costs and other operating costs also increased by 37.13% and 28.21% on a yearly basis. The higher expenses led to a considerable dip of 10.83% in the bank’s operating profits.

BoB’s performance was dismal on the asset quality front too. The bank's Gross NPAs increased by 16 basis points sequentially to 3.15% in Q2FY14 against 2.99% in Q1FY14. Its Net NPAs also increased by 17 basis points on a sequential basis to 1.86% in the said quarter from 1.69% in Q1FY14. Moreover, the return on assets for the bank came down to 0.84% during the reported quarter against 1.12% during the same period last year.

The weak numbers on the earnings and asset quality front gives out strong indications of a poor performance of the stock in the coming quarters. Until the bank improves its earnings and asset quality, investors should not think of the stock as an investment opportunity.