Shilpa Krishnan, Senior Research Analyst

91-22-5632 2246; shilpakrishnan@plindia.com In Focus

Bank of Baroda
BUY Rs.134 July 31, 2003

Q1FY04 Result and conference call highlights

n BoB reported PAT of Rs.2.44bn (+34%), in line with our estimate of Rs.2.39bn
n The NII, at Rs.6.65bn (+31%) was way above our estimate of Rs.5.84bn - the former included an
exceptional interest on IT refund at Rs.740mn. Excluding this item, the NII growth is 16.1% –
marginally above our estimate
n Other income of Rs.2.1bn (+11.6%) was led by a higher growth in fees, commissions & misc. income
(+13.8%) and a lower growth in profit on sale of investments (+7%)
n The increase in wage cost, at 11.8%, was lower than industry trends. This was due to BoB’s past
practice of making aggressive actuarial provisions for retiring employees, which has prevented major
escalation of provisions this year, unlike some other PSBs
n Advances growth at 4% was disappointing as it was lower than the banking system – the growth
guidance for the year, however, has been maintained at 12-15%

Key Numbers (Rs.bn)

Y/e March 2002 2003 2004E
Key figures Deposit base 618.04 663.66 733.35
Advances base 336.63 353.48 403.48
Size of balance sheet 709.10 764.18 846.62
Net interest income 18.79 21.03 24.08
PPP 13.09 17.17 21.36
Net Profit 5.46 7.73 9.99
Valuation ratios EPS (R) (Rs) 18.5 26.3 33.9
EPS (R) growth (%) 98.8 41.6 29.2
PER (x) 7.2 5.1 3.9
BVPS (Rs) 121.1 140.1 168.1
ABV PS (Rs) 64.6 96.0 133.0
P/BV (x) 1.1 1.0 0.8
P/ABV (x) 2.1 1.4 1.0
DPS (x) 4.0 6.0 6.0
Dividend Payout ratio (%) 21.7 22.9 17.7
Dividend Yield (%) 3.0 4.5 4.5

We reiterate BUY, based on

n Continued under valuation versus sector peers (1x FY2004E P/ABV)
n Continued optimistic growth outlook for FY2004, combined with optimism on commensurate growth in
dividend payouts
n The transformation programme, which formed basis of our initial report, going as per schedule

(Stock price as on July 31, 2003)

603, Raheja Centre, Nariman Point, Mumbai-400 021, India. Tel: (91-22) 5632 2222 Fax: (91-22) 2202 5661
 Bank of Baroda – Q1FY04 Result and conference call highlights

Performance table (Rs.mn)

Y/e March Q1FY03 Q1FY04 yoy gr. (%) FY2003 FY2004E yoy gr. (%)
Interest/discount on advances/bills 7,853 7,353 (6.4) 30,662 32,171 4.9
Income on investments 6,336 7,079 11.7 27,033 28,866 6.8
Interest on balances 751 477 (36.5) 2,303 1,700 (26.2)
Others 118 960 712.4 978 2,258 130.9
Total interest earned 15,058 15,869 5.4 60,976 64,995 6.6
Other income 1,883 2,101 11.6 12,617 14,145 12.1
Total income 16,941 17,970 6.1 73,593 79,140 7.5
Interest expended 9,972 9,224 (7.5) 39,942 40,916 2.4
Net interest 5,086 6,645 30.6 21,034 24,079 14.5
Gross profit 6,969 8,746 25.5 33,651 38,224 13.6
Employees 2,212 2,474 11.8 9,615 9,888 2.8
VRS 428 428 0.1 1,671 1,671 0.0
Other operating expenses 1,157 1,196 3.4 5,199 5,302 2.0
PPP 3,172 4,648 46.5 17,166 21,362 24.4
Tax provision 724 1,190 64.4 3,977 4,200 5.6
Contingencies 620 1,014 63.6 5,461 7,175 31.4
Net profit 1,828 2,444 33.7 7,728 9,987 29.2
Effective tax rate (%) 28 33 34 30

NIM expansion of 33bps even if interest on IT refund is excluded (%)

Q1FY03 Q1FY04 FY2003** FY2004E**

Yield on funds 8.11 7.98 8.36 8.14
Cost of funds 5.37 4.64 5.47 5.13
NIM 2.74 3.34* 2.88 3.02
* 2.97% if adjusted for the exceptional Rs740mn interest on IT refund. ** Our calculations are based on year-end averages and not on daily averages.

Advances growth low, however guidance of 12-15% for FY2004 maintained (Rs.mn)

Q1FY03 Q1FY04 yoy gr. (%) FY2003 FY2004E yoy gr. (%)
Advances (Net) 317,808 330,520 4.0 353,481 403,481 14.1
Deposits 630,890 653,980 3.7 663,664 733,348 10.5

Other income driven by fee-based rather than investment gains (Rs.mn)

Q1FY03 Q1FY04 Yoy gr. (%) FY2003 FY2004E yoy gr. (%)
Fees, Commissions, misc. income etc 1,278 1,455 13.8 6,302 6,645 5.4
Treasury profits 605 646 6.9 6,315 7,500* 18.8
Total non-fund income 1,883 2,101 11.6 12,617 14,145 12.1
* Including profit on G-Sec buyback

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 Bank of Baroda – Q1FY04 Result and conference call highlights

GNPA declines mainly due to write-offs (Rs.mn)

Q1FY03 Q1FY04 FY2003 FY2004E

Gross NPA 45,767 40,323 41,679 41,511
GNPA (%) 13.2 11.3 10.14 8.91
Provision 28,397 27,900 28,699 31,174
Provision coverage (%) 62.0 69.2 68.9 75.1
Net NPA 17,370 12,423 12,980 10,337
NNPA (%) 5.47 3.76 3.72 2.50

n The decline in outstanding provisions indicates that reduction in GNPA has been achieved by write-offs
coupled with containment of slippages. We believe the write-offs have been to the tune of Rs.1.8bn,
while slippages were around Rs.500mn
n The latest calculations on likely slippages after the 90-day migration continue to point to around
Rs.3-3.5bn, i.e. less than 10% of GNPA

Other highlights of conference call

FY2004 performance
n Rs.850mn profit booked on sale of Rs6bn worth of G-Secs, in the recent G-Sec buyback
n Further tranches of G-Sec buyback expected during subsequent quarters
n Another Rs.350mn IT refund has been received in Q2FY04
n Operating profit growth guidance of 25% and PAT growth guidance of 30%+ maintained

Technology and transformation

n ATM network of 140 now, March 2004 target is 500
n The IT rollout is expected to commence by September 2003 after the System Integrator is short listed
this month
n The market-related compensation for top professionals is being implemented as envisaged, with the
issue of appointment letters to 11 such prospective employees

International business
n International operations accounted for 15% of balance sheet size and 10% of operating profit

July 31, 2003 3

 Bank of Baroda – Q1FY04 Result and conference call highlights

Financial statements

Income Statement (Rs.bn)

Y/e March 2002 2003 2004E Y/e March 2002 2003 2004E
Income on Advances 30.60 30.66 32.17 Wages 8.89 9.61 9.89
Income on investments 23.68 27.03 28.87 VRS 1.67 1.67 1.67
Income on other balances 5.28 3.28 3.96 Other opex 5.07 5.20 5.30
Total interest earned 59.56 60.98 64.99 Total opex 15.63 16.48 16.86
Interest expenses 40.76 39.94 40.92 PPP 13.09 17.17 21.36
Net Interest Income 18.79 21.03 24.08 Tax 2.50 3.98 4.20
Treasury profits 4.15 6.32 7.50 NPA 4.11 3.81 6.00
Other fees and commissions 5.78 6.30 6.65 Other contingencies 1.03 1.65 1.18
Total non-fund income 9.93 12.62 14.15 Total provisions 7.63 9.44 11.38
Net income 28.73 33.65 38.22 PAT 5.46 7.73 9.99

Balance Sheet (Rs.bn)

Y/e March 2002 2003 2004E Y/e March 2002 2003 2004E
Sources Applications
Equity Share Capital 2.94 2.94 2.94 Cash & Bank Balances 89.47 68.17 72.86
Reserves and Surplus 35.33 40.93 49.15 Investments 238.33 301.79 325.72
Borrowed funds 624.97 669.92 740.85 Loans & Advances 336.63 353.48 403.48
Deposits 618.04 663.66 733.35 Net Fixed Assets 6.92 6.97 7.77
Other Liabilities & Provisions 45.85 50.39 53.68 Others Assets 37.74 33.76 36.78
Total Sources 709.10 764.18 846.62 Total Assets 709.10 764.18 846.62

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 Bank of Baroda – Q1FY04 Result and conference call highlights

Key Ratios (%)

Y/e March 2002 2003 2004E Y/e March 2002 2003 2004E

Yield Cost & Spread Growth Ratios

Avg. yield on advances 10.0 8.9 8.5 Income from advances 4.1 0.2 4.9
Avg. yield on investments 10.8 10.0 9.2 Income from investments 10.1 14.2 6.8
Yield on AWF 9.0 8.4 8.1 Fund based income 3.4 2.4 6.6
Avg. cost of deposits 6.6 5.9 5.6 Non-fund based income 40.6 27.0 12.1
Avg. cost of total borrowings 6.9 6.2 5.8 Interest expense 6.7 (2.0) 2.4
Interest expense / AWF 6.1 5.5 5.1 Net interest income (3.0) 11.9 14.5
Net interest income / AWF 2.8 2.9 3.0 PPP 26.3 31.1 24.4
PPP margin 18.8 23.3 27.0 Net Profit 98.8 41.6 29.2
NPM 7.9 10.5 12.6 Advances 22.8 5.0 14.1
Avg. advances 17.9 13.0 9.7
Non-fund Ratios Deposit 14.5 7.4 10.5
Fee-based income as % of TI 14.3 17.1 17.9 Avg. deposit 10.0 10.7 9.0
Treasury profits / TI 6.0 8.6 9.5 Deposits (absolute) (Rs.bn) 78.19 45.62 69.68
Treasury profits / PPP 31.7 36.8 35.1 Advances (absolute) (Rs.bn) 62.42 16.85 50.00

Efficiency Ratios Profile of Assets

Opex as % of NII 83.2 78.4 70.0 Cash as % of total WF 12.7 9.0 8.7
Wages as % of NII 47.3 45.7 41.1 Investments as % of total WF 33.9 39.9 38.8
Opex as % of AWF 2.4 2.3 2.1 Loans & advances as % of WF 47.9 46.7 48.1
Cost to income ratio 54.4 49.0 44.1 Credit - Deposit ratio 54.5 53.3 55.0
Net Profit per employee 136.5 193.2 262.8
RoE 14.3 17.6 19.2 Profile of Borrowings
RoAA 0.8 1.0 1.2 Demand 10.1 16.3 16.3
Savings 22.5 20.8 20.7
Capital Adequacy Ratios Term 66.3 62.0 62.0
Tier I CAR 7.6 8.1 8.7 Total 98.9 99.1 99.0
Tier II CAR 3.8 4.6 3.7 Other borrowings 1.1 0.9 1.0
Total CAR 11.3 12.7 12.5
NPAs
Gross NPAs as % of gross assets 11.4 10.1 8.9
Provisions as % of gross NPAs 62.9 68.9 75.1
Net NPAs as % of net advances 4.9 3.7 2.6

This report is based on information which Prabhudas Lilladher Pvt. Ltd. and its employees consider reliable. Whilst reasonable care has been taken
to ensure its accuracy, we accept no responsibility for it. This is not an offer to sell or buy securities. We may act upon this information prior to its
publication. This information is meant for the recipient only and is not for circulation.
July 31, 2003 5