Bank of Baroda -
Decent 5 yr Consolidated Performance
Step 1: quick-check stock analysis
April 2, 2009 Bank of Baroda is fast trying to catch up with its private sector counterparts! While 5yr growth CAGR may seem poor at ~16%, FY08 has seen handsome spurts in growth. Interest Income and Total Income grew by over 30 percent. Bank of Baroda has now emerged as one of the most cost-efficent banks, beating its private sector counterparts HDFC Bank and ICICI Bank and even the smaller and nimbler Axis Bank handsomely. It shows decent margins and return ratios but the stock is still languishing (Apr 2 2009) at less than consolidated book.
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Strong Capital BaseA strong capital base is the number one issue to consider before investing in a lenderBank of Baroda has its Capital Adequacy ratios at ~13 percent, much above the mandatory 9 percent requirement stipulated by RBI. Only 5 years back, Gross and Net NPAs (Non-Performing Assets) were very high. But with a consistent focus on reducing NPA levels, these have been brought down sequentially, year on year, to very comfortable levels in FY08. FY08 Gross and Net NPAs stand at 1.82% and 0.45%, respectively. Financial Leverage is around 16 percent in FY08. It is good to see Bank of Baroda maintaining contingent liabilities at low levels. Derivatives Exposure stood at ~31% of total assets, while total contingent liabilities stood at ~45% of total assets. This is probably one of the most conservative among all banks. Private Banks usually average above 200% of total assets on contingent liabilities. These metrics are the defacto standards for gauging bank profitability.Bank of Baroda's record on profitability needs to see more consistency. After dipping for a couple of years in FY2005 and FY2006 Return on Equity is again showing signs of improvement with FY08 RoE standing at 15%.This is primarily due to some improvement in net margins. Return on Assets is also showing gradual improvement over last 4 years. Efficiency RatioThe efficiency ratio or cost to income ratio, measures non-interest expense, or operating costs, as a percentage of income. Basically it tells you how efficiently the bank is managed. Many good banks have efficiency ratios under 55% (lower the better)Cost Efficiency ratio has seen significant improvements in the last 3 years with FY08 cost-efficiency ratio standing at ~33 percent; beats its private sector peers HDFC Bank, ICICI Bank, and even the smaller, nimbler
Axis Bank handsomely and rivals the much smaller Yes Bank. Net Interest Margins (NIM)Another simple measure to watch is net interest margin, which looks at net interest income as a percentage of average earning assets. Track margins over time to get a feel for the trend.Net Interest margins have been around the 3 percent mark. FY08 has shown NIMs coming down a bit to 2.9 percent. Strong RevenuesHistorically many of the best-performing bank investments have been those that have proven capable of above-average revenue growthWhile 5yr growth CAGR may seem poor at ~16%, FY08 growth has been good. Interest Income and Total Income growth stands at over 30 percent. Because a bank’s balance sheets consist mostly of financial assets with varying degrees of liquidity, book value is a good proxy for the value of a banking stock. Also many of the assets included in their book value are marked-to-market –in other words they are revalued every quarter to reflect shifts in the marketplace, which means that book value is reasonably current. So the base value for a bank should be the book value. Any premium over that, investors are paying for future growth and excess earnings. Typically big reputed banks trade at 2x to 4x book value.Bank of Baroda is currently (Apr 2, 2009) trading at 0.79 Consolidated Book Value, historically at its lowest levels seen in the past 5 years. However Bank of Baroda is a much more efficient and competitive bank today fast catching up with the best of its private sector peers. Overall verdict Worthy of further investigation. Need to check record of other PSU Banks, first. If you are interested in Bank stocks in the Indian stock market, its time to get to get to quick-check stock analysis step 2: Peer Comparisons
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Yes Bank |Commendable 4yr performance record
HDFC Bank |Throws up a pretty picture!
ICICI Bank |Why you should stay away!
Axis Bank |Commendable record, but battered on asset quality concerns!
Return from Bank of Baroda-5yr Consolidated Snapshot to India Stock Market
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