Bank Of Baroda - 3QFY2017 Result Update - Angel Broking

BoB's 3QFY17 results remained disappointing. The bank continues to face headwinds on asset quality on one hand, while on the other hand the balance sheet continued to de-grow as the management intentionally downsized some low margin business. Coming few quarters might be challenging for the bank.

Loan book continued to decline as overseas portfolio downsized: Overall loan growth declined by 8.9% YoY, as the overseas loan portfolio decline by 20.1% YoY. The management has taken a cautious call of downsizing the low margin portfolio like buyers credit and hence there was de growth in loan book. While the bank intends to focus on profitable segment and lend selectively, this might take a toll on the overall growth in the near term. While CASA growth remained strong up 25% YoY, the bank's overseas deposit portfolio declined by 14.1%YoY and hence overall deposit base remained flat YoY, but saw a 3.9% growth QoQ.

NIM was under pressure, likely to remain subdued in the near term: NIM was under pressure and declined to 2.06% vs 2.29% QoQ due to interest reversals to the tune of Rs. 260 cr. The bank as a strategy has been downsizing the overseas loan book, which attracts very low margin and higher contribution from the domestic business can lead to better margins in the long run, however in the near term we expect NIM to remain under pressure.

No Respite from asset quality issues: While the bank has been maintaining that large part of the asset quality might get over, the slippages remained elevated. Gross slippages of Rs. 4135cr (slippages ratio of 4.16%) was much higher than Rs. 2,861cr (slippage ratio of 2.84%) in 2QFY17. Though slippages remained high, aggressive write off resulted in sequential decline in GNPAs. GNPAs % for the quarter stood at 11.4% vs 11.35% qoq, while NNPA% was at 5.43% vs 5.46%.The bank intends to improve its provisioning coverage ratio and hence in absolute terms the provisions might remain high in the quarters to come.

Outlook and valuation: With continued pressure on asset quality and resultant credit cost the earnings of the bank might remain under pressure in the near term Further as the bank is looking to downsize the low margin business the overall loan growth might disappoint and the stock might remain range bound. At the current market price, the stock is trading at 1.7x FY2018E ABV. We have a NEUTRAL rating on the stock.

Shares of BANK OF BARODA was last trading in BSE at Rs.166.05 as compared to the previous close of Rs. 163.2. The total number of shares traded during the day was 863354 in over 5609 trades.

The stock hit an intraday high of Rs. 167.75 and intraday low of 163.65. The net turnover during the day was Rs. 143037584.

Source : Equity Bulls

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