Bank of Baroda - KR Choksey Stock Recommendations
Bank of Baroda
Initiating Coverage
Key Data
CMP Rs 301.3
Date March 28th 2008
Sector Banking
Face Value Rs.10
BSE Code 531234
52 Week H/L Rs 501/193
Market Cap Rs 11013.72 Cr
Investment Rationale
Bank of Baroda, incorporated in 1908, is the fourth largest state-owned bank in India. It has a large network of over 2,800 branches, 71 overseas offices and 1,078 ATMs. 60percent of its branches are located in the rural and semi-urban regions of India. The company provides personal banking services including deposits, retail loans, credit cards, debit card, lockers and other services and also provides business banking services merchant banking services The government owns 53.8percent of the bank’s equity.
Results of the bank were ahead of market estimates, net profit of the bank showed a growth of 52percent to Rs.501crore during Q308 as against Rs329crore during the same period last year. For the first nine months of the current fiscal net profit of the bank showed a growth of 48percent to Rs.1159crore as compared to Rs 780crore during the same period in last year. Deposits were up by 22percent to Rs 136900crore and advances were up by 23percent to Rs.95518crore. The rise in net profit was mainly due to increase in other income and better cost management. Other income rose by 85percent to Rs.618crore in Q3FY08 from Rs333.7crore during the same period last year and operating expenses increased just by 7percent due to lower employee expenses. We initiate coverage on Bank of Baroda with “BUY” recommendation.
Key Developments
Improvement in Asset Quality
The bank has continued on the asset quality improvement. The Gross NPA during the quarter has declined to 2.11percent (Rs.2040.30crore) as compared to 3.02percent last year (Rs.2388.60crore) and Net NPA’s during the quarter have declined to 0.54percent as compared to 0.67percent last year.
Healthy Business growth
The total business has grown by 22.4percent to Rs.232418crore as compared to Rs.189874Crore during the last year. Advances have grown by 23percent to Rs.95518crore and deposits have grown by 22percent to Rs.136900Crore (yoy)
Financial Performance
Net profit of the bank showed a growth of 52 percent in Q3FY08
Bank of Baroda (BOB) reported a net profit of Rs501 crore, far ahead of market expectation led by buoyant treasury gains and controlled Operational expenditure. The asset quality continued on the improvement track with decline in the NPAs at gross as well as net level. Other income of the bank increased by 85percent (YoY) to Rs618crores, led by higher treasury profits.
Valuations
At the CMP of Rs 301.3 the bank is trading at a P/E of 7.84x TTM Dec 07 earnings and 1.31x TTM Dec 07 book value. We initiate coverage on Bank of Baroda with “BUY” recommendation.
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