Bank of Baroda's Q3FY19 results (Underperformer) - Strong quarter, merger overhang remains
Q3FY19 result highlights
- BoB announced a strong quarter with consistently strong loan growth, qoq NIM expansion, decline in NPLs and the highest provisioning cover among the corporate banks we cover. The bank recognized Rs11.7bn of its total exposure of Rs45bn to ILFS as non-performing.
- Net loans grew 12% yoy and 3% qoq. Gross loans grew 16% yoy and 3% qoq. Domestic loan growth was strong at 21% yoy and 4% qoq driven by strong growth in retail that grew 18% yoy and 6% qoq. Home loans grew 34% yoy and 4% qoq driven by portfolio buyouts and organic growth. Consolidation in overseas loans is done with overseas loans remaining flat qoq. .
- NIM improved .8bp qoq to 2.69% driven by an improvement of 33bp in overseas NIM. NII grew 8% yoy and 6% qoq.
- Core operating profit remained flat yoy but grew 5% qoq.
- Slippage remained flat qoq at Rs37bn. Slippage includes Rs11.7bn of IL&FS. GNPAs declined 4% qoq. There was a sharp increase in loan provisions that grew 132% sequentially. This has led to a strengthening of provisioning cover ex write-offs to 64% from 61% which is the highest amongst corporate banks we cover.
Valuation and view: We expect these results to drive a short term re-rating of the stock. However we remain concerned about risks from the proposed merger with Dena / Vijaya. We believe the merger will have a negative impact on financials and operations. The CEO’s new tenor is short at one year most of which will be spent in managing the merger. We maintain Underperformer despite a very strong set of numbers. We maintain TP of Rs95.
Bank of Baroda is engaged in providing various services, such as personal banking, corporate banking, international banking, small and medium enterprise (SME) banking, rural banking, non-resident Indian (NRI) services and treasury services. The Bank's segments include Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations. The Bank offers personal banking services, such as deposits, loans, mobile banking and wealth management services; business banking services, such as Baroda Money Express, debit cards and collection services; corporate banking services, such as appraisal and merchant banking, and cash management and remittances; international banking services, such as export, import and trade finance, and correspondent banking; rural banking services, such as deposits, priority sector advances, financial inclusion and lockers, and treasury services, such as domestic and forex operations. The Bank operates a network of approximately 5,330 branches.
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