Hold Bank of Baroda: Ventura

Ventura has recommended a hold rating on Bank of Baroda in its May 23, 2014 research report.

Ventura`s research report on Bank of Baroda

"Continuing its stellar performance, Bank of Baroda's (BOB) NII came in at Rs 3,124.3 crore, in line with street estimates. Higher other income and lower employee costs resulted in a 18.2 percent YoY growth in operating profit before provisions & contingencies, which stood at Rs 2,580 crore. Advances increased by 21 percent YoY to Rs 3,97,000 crore, driven by strong momentum from retail and SME clients. Overseas advances grew by 20.2 percent YoY aided by the pickup in demand for short term credit instruments and rupee depreciation."

"During the quarter, BOB's asset quality managed to deliver a better set of numbers with a fresh slippage ratio for FY14, which was contained at 1.7 percent of net advances against 2.1 percent during FY13. This can be considered a remarkable achievement given the weak domestic economic environment and volatility in asset quality among peers. BOB has a restructured book of Rs 22,450 crore (combined for domestic and overseas businesses) which is ~5.7 percent of net advances. The management expects a stressed asset pipeline of Rs 1,200 crore in the coming quarters, which is a key factor to be monitored.  Aligned to AS 15 requirements, the bank has been providing Rs 75 crore per quarter for wage revisions that factors in a 17 percent wage hike. This is the highest among its peers as other banks have been undertaking provisions in the range of just 8-13 percent. Thus, its peers will have to provide for higher amounts in the subsequent quarters. BOB is better off as it will not have to accelerate provisioning in subsequent quarters. This would allow the bank to improve its cost to income parameter."

"Gross non-performing assets (NPAs) were at 2.9 percent of gross advances for Q4FY14, as against 3.3 percent for Q3FY14 and 2.43 percent for Q4FY13. Net non-performing assets were at 1.5 percent of net advances as on March 31, 2014. Total restructured loans were at 5.6 percent of advances as of March 31, 2014. The Bank has continued its branch expansion adding 538 branches during FY14. As of FY14, the bank's distribution network was at 4,874 branches and 6,254 ATMs as against 4,336 branches and 2,630 ATMs as of FY13. The Bank's total Capital Adequacy Ratio (CAR) as at FY14 (computed as per Basel III guidelines) stood at 12.3 percent as against a regulatory requirement of 9 percent. Of this, Tier-I CAR including current year profits, was at 9.5 percent.  Currently, at the CMP of 955, BOB is valued at 0.9 Adj. P/BV on a 2 year forward basis. Among the PSU banks, BOB continues to remain our preferred pick but considering the apathy prevalent in the banking space and the mountain of bad debt plaguing the sector, we prefer to avoid PSU Banks in general for the medium term," says Ventura research report.  

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