Bank of Baroda - Q1FY14 Results Review :: Religare research

Bank of Baroda BOB IN

Asset quality risks persist BOB’s Q1FY14 earnings were in line, but asset quality risks remained elevated and future profitability outlook subdued. Business growth was muted and NIMs declined by 9bps QoQ. Impaired asset formation remained high at Rs 40bn (~5% on annualised basis). PAT was higher than estimates at Rs 11.7bn (+15% QoQ), but driven by trading profits. We cut FY14/FY15 EPS estimates by 17%/16% to factor in lower growth and higher provisions, but maintain BUY on attractive valuations (0.6x/4.8x FY14 ABV/EPS).Æ  Slippages/restructuring remain high: Slippages/restructuring were high at Rs 19.6bn/Rs 20bn. Slippages from domestic advances stood at Rs 18.4bn (3.7% on annualised basis). Recoveries/upgrades improved from Rs 2.3bn in Q4FY13 to Rs 3.5bn in Q1FY14 but remained lower compared to peers. GNPLs/NNPLs increased by 59bps/41bps QoQ to 3%/1.7% and the PCR declined to 44.3%. Outstanding standard restructured assets stood at Rs 175bn (5.4% of advances). The restructuring pipeline was at ~Rs 25bn in Q2FY14 with slippages likely to be at elevated levels; however, management has guided for an improvement in H2FY14.  Æ  NIMs under pressure; advances growth muted:Advances/deposits declined by 1.4%/1.5% QoQ (up 13%/22% YoY). Domestic advances grew by 10% YoY whereas growth in international advances (+18% YoY) was driven by INR depreciation. Domestic/international NIMs declined by 9bps/17bps QoQ to 2.84%/1.3% as pricing power remains weak. However, the domestic C/D ratio was low at 66.5% which could provide support to NIMs. Other income grew by 60% YoY, but driven by trading profits (Rs 4.1bn as against Rs 815mn in Q1FY13). Opex increased by 27% as the bank provided Rs 1bn/Rs 0.75bn towards pension liabilities/wage revisions.     Æ  Subdued near-term outlook but valuations attractive: We cut our FY14/FY15 earnings estimates by 17%/16% to factor in lower growth and higher provisions, and trim our TP to Rs 775 (from Rs 875). While the near-term outlook is challenging given a weak macro, valuations (0.6x/4.8x FY14 ABV/EPS) are attractive.

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