1. Bank of Baroda shares rally over 4% after turning Rs 155 cr profit in Q4; should you buy?

Bank of Baroda shares rally over 4% after turning Rs 155 cr profit in Q4; should you buy?

State-run Bank of Baroda (BoB) shares rallied over 4 per cent on Friday after the public sector lender posted net profit of Rs Rs 155 crore in the quarter ended March 31, 2017 as against net loss of Rs Rs 3,230 crore in the same period last year.

By: | Published: May 19, 2017 10:12 AM
Bank of Baroda shares were trading up 3.44 per cent at Rs 194.20 in the morning trade after swinging into net profit in the fiscal fourth quarter. (Image: Reuters)

State-run Bank of Baroda (BoB) shares rallied over 4 per cent on Friday after the public sector lender posted net profit of Rs Rs 155 crore in the quarter ended March 31, 2017 as against net loss of Rs Rs 3,230 crore in the same period last year. Bank of Baroda shares were trading up 3.44 per cent at Rs 194.20 in the morning trade. The share price opened at Rs 190.40 and touched a high and low of Rs 195.70 and Rs 190.40 in the trade so far. Sensex was trading 232.59 points up at 30,667.38 at the same time.

The public sector bank had posted a spike in bad assets in the same period last quarter. Gross non performing assets of the bank stood at 10.46 per cent while net NPA was at 4.72 per cent for the reporting quarter. The gross NPAs stood at Rs 42,719 crore for March 2017. The bank, while announcing its fourth quarter results added that it doesn’t expect NPA to rise more than Rs 3,000 crore in fiscal year 2017-18.

“The profit in this quarter is largely the organic business that grows. There was growth in the fee income and also due to some interest on treasury related income tax refund. Fundamentally it was business as usual for us,” managing director and CEO P S Jayakumar said.

The net interest margin (NIM) for domestic operations was at 2.5 per cent, while global margin stood at 1.8 per cent. Total NIM in the fourth quarter was at 2.17 as against 2.06 in the same quarter last year.

Below are key takeawas from its Q4 results:

  • Net interest margin (NIM) for domestic operations stood at 2.5 per cent, while global margin stood at 1.8 per cent. Total NIM in the fourth quarter was at 2.17 as against 2.06 in the same quarter last year
  • Gross non performing assets of the bank stood at 10.46 per cent while net NPA was at 4.72 per cent
  • The bank reported a disclosure in divergence of Rs 295 crore in gross non-performing assets (NPA)
  • Total provisions during the quarter was Rs 2,623 crore as against Rs 6,858 crore in the year-ago period
  • Fresh slippages in the fourth quarter was Rs 4,077 crore as against Rs 5,932 crore in the same period last year. The lender recovered Rs 1,541 crore of loans
  • It upgraded Rs 884 crore of loans, while wrote off Rs 1,211 crore of loans
  • The bank has valued its non-core assets at Rs 6,000 crore and will be selling some of them in the current financial year
  • Total deposits stood at Rs 6,01,675 crore as at March 31, 2017 as against RS 5,74,038 crore as at March 31, 2016. Total advances were Rs 3,83,259 crore as at March 31, 2017 against Rs 3,83,770 crore as at March31, 2016.

Should you buy?

Brokerage House Edelweiss Finance has maintained a ‘Buy’ rating on the stocks with a target price of Rs 187. It said, “Bank of Baroda (BoB) turned in a steady Q4FY17 performance with better asset quality and stabilising core. Slippages were restricted to around 4.7% (flat QoQ), as BoB ended FY17 with slippage of Rs 133 billion (within its guided range of Rs 150 billion). The bank judiciously made higher provisions (coverage ratio rising to >66%), leading to fall in NNPLs to 4.72% (5.43% in Q3FY17), a key positive. Loan growth was flat YoY (effected by FCNR-B linked loans, portfolio rebalancing), but bank’s process re-engineering has started showing green-shoots, as reflected in >9% QoQ growth, sustainability of which is key.”

It added, “the public sector bank has been slowly improving its operating performance. However, challenging environment took a toll. Despite high credit costs and weak margins, the bank will still generate near-term RoE of 10-11%. Further, even though BASEL III requirements are rising, we perceive lower dilution risks.”

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