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Bank of Baroda Research Report - 03rd Mar 2016

Banking | Published on Mar 03rd 2016


Bank of Baroda (BoB) took aggressive steps to clean up its balance sheet and recognized all the RBI identified weak accounts as NPA during the quarter (3QFY2016). Consequently the provisions went up substantially and the bank reported a loss of Rs3,342cr. Substantial rise in provisions and decline in loan book resulted in loss at the net level: During the quarter, the loan book declined by 2.4% yoy, while deposits grew by 4.4% yoy. CASA deposits declined by 5.1% yoy and as a result the CASA ratio declined to 24% vs 26.4% in 3QFY2015. Provisions went up 2.5x qoq and hence the bank reported a huge loss of Rs3,342cr compared to a PAT of Rs334cr in 3QFY2015 and of Rs124.5cr in the sequential previous quarter. However, as the bank has now recognized a large part of the troubled accounts and taken provisions accordingly, we expect the profitability to improve from 1QFY2017 onwards. Early recognition of stressed assets gives better clarity: BoB is the only bank in the PSU space which has recognized all the AQR related accounts as NPAs. Further it also has recognized certain stressed accounts as NPA during the quarter; as a result the gross slippages went up substantially to Rs15,785cr. However, this gives better clarity on the asset quality of the bank. The Management doesn’t expect much pain in terms of asset quality, going ahead. The Gross NPA ratio went up substantially to 9.68% from 5.56% in 2QFY2016 (up 412bp qoq), while the Net NPA ratio stood at 5.67% vs 3.08% in 2QFY2016. BoB has recognized a majority of its 5:25 and SDR accounts as NPAs; hence, most of the pain in terms of asset quality now seems to be through for the bank. Outlook and valuation: BoB is the only large PSU bank to have recognized all the AQR accounts as NPA during the quarter. The Management’s intention to clean up its balance sheet faster than others gives more clarity about the bank’s growth prospects, going ahead. The bank is well capitalized with a CAR of 12.2% and believes it will not need any fresh capital for the next 18-24 months. At the current market price, the stock trades at a valuation of 0.9x FY2017E ABV. Although there is more clarity on the bank’s asset quality now, in our view, the bank is trading at a higher valuation multiple compared to its peers. Hence, we maintain our Neutral view on the stock.

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CMP 145
Target Price
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)35,265.16
MCAP NSE (Rs in Cr)35,265.16
P/E (x)NM
EPS (Rs.)-26.14
BV (Rs.)158.07
Div Yield (%)0.00
FV (Rs.)2.00
P/BV (x)0.97
EV/Sales (x)11.33
EV/EBITDA (x)25.42

Shareholding Pattern (%)

Public & Others6.0
Grand Total100.0

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