STOCK UPDATE
Bank of Baroda
Cluster: Apple Green
Recommendation: Buy
Price target: Rs802
Current market price: Rs734
Q1FY2011 results: First-cut analysis
Result highlights
Bank of Baroda reported a bottom line of Rs859.16 crore in Q1FY2011, up 25.4% year on year (yoy), versus our estimate of Rs794 crore, supported by a strong growth in the net interest income (NII). The asset quality deteriorated on a sequential basis due to slippages from the small and medium enterprise (SME) and agri portfolio.
The NII for the quarter was up a robust 54.2% yoy to Rs1,858 crore, driven by a strong 30.7% year-on-year (y-o-y) growth in the advances. Meanwhile the calculated net interest margin (NIM) deteriorated by 6 basis points sequentially led by a contraction in yields.
The non-interest income came down 12.2% yoy to Rs617.2 crore despite a healthy growth in core fee income due to a y-o-y decline in the banks? treasury income.
The operating expenses were up by 5.5% yoy led by a 22.1% y-o-y increase in other operating expenses. Meanwhile staff expenses contracted by 2.9% yoy. The cost-to-income ratio improved by 878 basis points yoy to 38.3%.
The business growth remained very strong with deposits and advances growing by 28.2% and 30.7% yoy respectively. The advances growth was led by the SME segment which grew 42.7% yoy. The domestic current account and saving account (CASA) ratio of the bank stood at a healthy 35.23%, largely in line with that of the year ago quarter.
The provisions for the quarter stood at Rs251.3 crore vs a write-back of Rs39 crore in the year ago quarter.
The asset quality of the bank deteriorated in the quarter, as gross non-performing asset (GNPA) increased 10.7% sequentially to Rs2,657.4 crore. The GNPA on relative basis (%GNPA) increased 5 basis points sequentially to 1.41%. The deterioration in asset quality was largely due to slippages from the banks? SME and agri portfolio. The provisioning coverage as at the end of Q1FY2011 stood at 73%.
The total restructured assets stood at Rs5,283.4 crore, (~2.8% of advances), of which Rs476 crore (~9% of total restructured assets) have slipped into NPA category so far.
The bank, as on June 30, 2010, remains adequately capitalised with its capital adequacy ratio (CAR) at 13.25% (as per Basel II norms) with tier I CAR at 8.16%. The bank raised upper tier II capital of Rs1,000 crore during the quarter.
At the current market price of Rs734, the stock trades at 16.7x FY2012E earnings per share (EPS), 4x FY2012E pre-provisioning profit (PPP) per share and 1.4x FY2012E adjusted book value (ABV) per share. We will revert with a detailed analysis of the banks Q1FY2011 performance.
