Bank of Baroda shares surged over 24 per cent intraday on Monday despite posting its its highest ever quarterly loss of Rs 3,342 crore for the quarter ended December 2015. The bank earned Rs 333.98 crore in the corresponding quarter last year.
However, the stocks of the country’s second-largest lender defied the loss after the management said that all non-performing assets were accounted for and it could return to profitability next fiscal. Its newly inducted managing director and chief executive P S Jayakumar said through the clean-up and reorganisation exercise, the bank is confident of posting “reasonable level” of profit next fiscal year.
The share price of Bank of Baroda settled 22.04 per cent up at Rs 139.55. Earlier, the scrip opened at Rs 120 and touched a high and low of Rs 142 and Rs 118, respectively, in trade so far. The benchmark index BSE Sensex closed 2.47 per cent, or 568 points, up at 23,554.12.
The loss was driven by a 225 per cent increase in provisions, which rose from Rs 1,891 crore in the previous quarter to Rs 6,164 crore.
The gross non-performing assets (NPA) ratio surged to 9.68 per cent on fresh slippages of Rs 15,603 crore in the quarter under review as against Rs 3,042 crore in the year-ago period. This resulted in a nearly five-fold jump in overall provisions and contingencies at Rs 6,164.55 crore.
“We have put the uncertainty behind us. If something has to be done, it might as well be done now. As far as we can see, we have taken all the required provisions, from here onwards, we expect a fair bit of stability in the outcome of the portfolio,” said, Jayakumar.
According to Religare Institutional Research, Bank of Baroda reported a PBT loss of Rs 4,500 for Q3FY16 as provisions spiked QoQ. However, tax write-backs of Rs 1,100 crore helped the bank narrow the loss to Rs 3,300 crore. Asset quality worsened as stressed asset formation rose to Rs 24,000 crore with Rs 15,600 crore of fresh slippages, Rs 300 crore of fresh restructuring, Rs 5400 crore of 5:25 and Rs 2,400 crore of SDR. On a positive note, management is confident of having cleaned up its books, leaving no uncertainty for future quarters. The brokerage house cuts earnings and reiterate ‘Sell’ on Bank of Baroda shares with a new March 2017 target price of Rs 115 (from Rs 145 earlier).
However, IDFC Securities in a research report said, “With early recognition of stress, management’s commitment that the bank will not dilute and the bank’s high Tier I we expect the stock to outperform other state bank stocks. While earnings will revive, we do not expect the bank to generate return on equity (RoE) higher than the cost of equity (CoE) till FY18. As such the stock will continue to trade below book, in our view. We expect RoE of 7 per cent in FY17 (management guidance of 8-12%), 10 per cent by FY18 and 14 per cent by FY19.”
(With inputs from PTI)