BANK OF BARODA Hold POST RESULT NOTE

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1 ` Bank of Baroda (BoB) reported mixed set of numbers with coreearning (NII) in line with our estimates. Operating profit was 5% below our estimates due to lower than estimated non interest income. Write back of investment depreciation provisions led to PBT in line with our estimates. Tax provision was higher as bank created Deferred Tax liability of Rs 2.72 bn, post tax and non recurring item, NP stood at Rs bn up 4% YoY and down 10% sequentially. Though we have seen marginal deterioration in asset quality, trends in slippages over the past three quarters is down. Trends in restructured accounts is also tapering down with restructuring of Rs bn. Reported margins have seen YoY 28bps decline while improved 5 bps QoQ. At CMP, stock trades at at 0.8x FY15 ABV. The bank has comfortable Tier I capital adequacy at 8.7% (Basel III). Though we have seen consistency in banks results in line with management s guidance, given challenging macro economic environment we remain cautions on stock and retain Hold with target price of Rs 605. Stock data Hold CMP: Rs 558 Target Price: Rs wk H/L: Rs 802/ Rs 429 Market Cap (Rs bn) Market Cap (USD bn) 3.86 Shares Outstanding (mn) Free Float (%) M avg. daily vol.(mn) 1.90 Bloomberg Code BOB IN Reuters Code BOB. BO Shareholding Pattern (%) Promoter Institutions Public & Others 8.98 Stock Performance Return (%) 1m 3m 6m 12m Absolute Relative P/ABV(x) band 1200 POST RESULT NOTE x 1.25x 1.0x 0.75x Jan04 Jan05 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Source: Bloomberg, Almondz Research Exhibit 1: Quarterly Results Rs mn FY13 FY14 FY13 FY14E FY15E Parameter Q1 Q2 Q3 Q4 Q1 Q2 Q3 YoY (%) Net Interest Income 27,981 28,623 28,409 28,140 28,891 28,948 30, , , ,660 YoY growth (%) Non Interest Income 7,708 8,283 8,406 11,909 12,306 9,739 9, ,306 39,131 42,573 Total Income 35,689 36,906 36,815 40,049 41,197 38,687 39, , , ,233 Operating Expenses 13,157 13,080 14,255 18,229 16,680 17,441 17, ,467 67,302 75,947 Operating Profit 22,532 23,826 22,560 21,820 24,516 21,246 21,975 (3) 89,992 99, ,286 YoY growth (%) (13.5) (10.8) (2.6) Other Provisions 8,938 6,464 10,293 15,984 10,179 8,608 7,619 (26) 41,679 39,794 40,985 Profit Before Tax 13,594 17,362 12,267 5,836 14,338 12,638 14, ,312 59,922 65,301 Tax Expenses 2,081 4,223 2,026 (4,825) 2, , ,505 14,957 15,943 Net Profit 11,513 13,138 10,241 10,662 11,834 11,837 10, ,807 44,964 49,358 YoY growth (%) (21.4) (30.3) 2.8 (9.9) 3.8 (10.5) Exp Items Reported Net Profit 11,389 13,014 10,116 10,289 11,834 11,681 10, ,807 44,964 49,358 YoY growth (%) (21.6) (32.2) 3.9 (10.2) 3.6 (10.5) Gross NPA (Rs bn) Net NPA (Rs bn) Coverage Ratio (%) February 2014 Mangesh Kulkarni Chaitra Kanadia mangesh.kulkarni@almondz.com chaitra.kanadia@almondz.com Tel. : Tel. : Mobile : Mobile :

2 Key highlight: Mixed operating performance: Operating performance of the bank was mixed, with in line core earnings at Rs bn (up 8% YoY and 6% QoQ) led by sequential 5 bps improvement in NIMs and higher than industry average advances growth at 18% YoY and 4% QoQ. However, operating profit was 5% below our estimates due to lower than estimated non interest income. Core fee income was lower than estimates at Rs 3.21 bn (up 9% YoY and down 16% QoQ). Business expansion: Advances grew 18% YoY and 4% QoQ to Rs 3524 bn led by 18% growth in domestic advances and 17% growth in overseas advances. Domestic loan book expanded due to 21% growth in retail advances. Within retail, SME segment saw YoY 39% and QoQ 5% growth, Home loans grew 21% YoY 5% QoQ. For rest of FY14 management intends to avoid aggression in loan book expansion, however will still grow tad higher than industry average and will maintain its market share. Deposits grew 21% YoY led by 36% growth in overseas deposits as bank raised USD 1.9 bn FCNR B deposits under RBI swap window. Global CASA ratio stood at 26.21%. CD ratio remained comfortable at 70%. Margins improve sequentially: After falling consecutively for past nine quarters, the bank has shown QoQ 5 bps improvement in its global NIMs which stood at 2.37%. Domestic NIM improved 10 bps sequentially. Management expects its domestic NIMs to further improve to 3% through further rebalancing of its loan book. Reducing stress: Though we have seen marginal deterioration in asset quality, trends in slippages over the past three quarters is down. GNPAs rose in absolute as well as % term 3.32% QoQ. With PCR of 62% net NPA s stood at 1.88%. There is no sectoral concentration and/or lumpiness in the incremental restructuring witnessed by the bank, as the largest account being restructured was of the size of Rs 1.3 bn. Trend in restructured accounts is also tapering down with restructuring of Rs bn. Total restructured portfolio of the bank s domestic operations stood at Rs 223 bn and of overseas operations stood at Rs 4,1 bn forming 7.36% of global advances. The Rate of slippage into NPAs (from the restructured loanbook) so far is around 20.2%. The bank has guided that the bad loans accretion would stabilize from here on with restructuring pipeline of around Rs 1520 bn. Best capital position amongst peers: Bank s capital position (excluding profits in the current year) stood at 8.72% under Basel III. Further in Jan 2014, Government infused Rs Rs 5.5 bn in the bank giving further boost to its CRAR. 7 February

3 Valuations: Bank has show consistency (as guided by management) in its performance even in distressed macro economic environment. Going forward, management intends to improve ROA back to 1% and expects improvement in asset quality. Stock is trading at 0.8x FY15 ABV for RoA/ RoE of 0.8%/ 13.5%; retain Hold with target price of Rs 605. Exhibit 2: Financial Snapshot Rs mn FY09 FY10 FY11 FY12 FY13 FY14E FY15E Net Interest Income growth (%) Net Profit growth (%) (10.5) NIM (%) EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) RoANW (%) RoAA (%) Exhibit 3: Advances Exhibit 4: Deposits Laon book Rs bn (LHS) (%, YoY) Deposit Rs bn (LHS) Growth (%, YoY) 4, , , , , , , , , , , , , , Q 1F Y 12 Q 2F Y 12 Q 3F Y 12 Q 4F Y 12 Q 1F Y 13 Q 2F Y 13 Q 3F Y 13 Q 4F Y 13 Q 1F Y 14 Q 2F Y 14 Q 3F Y 14 Q 1FY 12 Q 2FY 12 Q 3FY 12 Q 4FY 12 Q 1FY 13 Q 2FY 13 Q 3FY 13 Q 4FY 13 Q 1FY 14 Q 2FY 14 Q 3FY 14 Exhibit 5: Advances breakup Loan book breakup Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Overseas (Rs bn) ,039 1,058 1,090 1,148 % Total Domestic (Rs bn) 1,686 1,690 1,802 2,021 1,960 1,987 2,012 2,243 2,156 2,308 2,377 SME (%) Agri (%) Corp & others (%) Retail (%), of which Home loan (%) February

4 Exhibit 6: Deposits breakup Deposit breakup Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Overseas (Rs bn) ,047 1,049 1,153 1,193 1,322 1,428 1,554 1,628 % Total Domestic (Rs bn) 2,365 2,447 2,550 2,801 2,778 2,929 2,954 3,417 3,242 3,296 3,409 CA (%) SA (%) Domestic CASA (%) Global CASA (%) Exhibit 7: Asset quality Asset quality Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 GNPA (Rs bn) GNPA (%) NNPA (Rs bn) NNPA (%) Exhibit 8: Asset quality assessment Asset Quality Analysis Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Opening Addition % of avg book Coverage on net slipp Recovery Upgradation W/o and others Total Reduction Closing Exhibit 9: Slippages % loan book (annualized) Exhibit 10: Provision made on slippages (net off Reco+upgrade) Slippages (% annualized) Cove rage on sl i ppages (net off Reco+Upgrade ) Q 1F Y 12 Q 2F Y 12 Q 3F Y 1 2 Q 4F Y 12 Q 1F Y 13 Q 2F Y 13 Q 3F Y 13 Q 4F Y 13 Q 1F Y 1 4 Q 2 F Y 14 Q 3F Y 1 4 Q1F Y12 Q2F Y12 Q3F Y12 Q4F Y12 Q1F Y13 Q2F Y13 Q3F Y13 Q4F Y13 Q1F Y14 Q2F Y14 Q3F Y14 7 February

5 Exhibit 11: Coreearning Exhibit 12: Margin (reported) NII Rs bn (LHS) (%, YoY) Yi el d Cos t NIM Q 1 F Y 12 Q 2 F Y 12 Q 3 F Y 12 Q 4 F Y 12 Q 1 F Y 13 Q 2 F Y 13 Q 3 F Y 13 Q 4 F Y 13 Q 1 F Y 14 Q 2 F Y 14 Q 3 F Y 14 Q 1F Y 1 2 Q 2F Y 1 2 Q 3F Y 1 2 Q 4F Y 1 2 Q 1F Y 1 3 Q 2F Y 1 3 Q 3F Y 1 3 Q 4F Y 1 3 Q 1F Y 1 4 Q 2F Y 1 4 Q 3F Y 1 4 Exhibit 13: Calculated cost and yield movement (%) Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 YoY (bps) QoQ (bps) YoF (55) (13) CoF (46) (20) CoF * (56) (24) NIM (22) 5 ; *: Cost of fund excl. CASA Exhibit 14: Noninterest Income Noninterest Income (Rs mn) Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 CEB 2,748 3,137 2,930 3,447 2,759 3,104 2,946 3,764 3,147 3,820 3,214 % avg. loan book Recoveries 288 1, , ,804 2,469 1, % W/o (past 4 cumulative qtrs) FX gain 1,400 1,473 2,407 1,632 1,921 1, ,303 2,524 2,568 2,605 Treasury gain ,855 1, ,120 1,356 2,882 4,093 1,182 1,271 Others 1,233 1,412 1,590 1,465 1,383 1,572 1,564 1,492 1,373 1,862 1,734 Total 6,409 7,343 11,493 8,978 7,708 8,283 8,406 11,909 12,306 9,739 9,321 Growth (%, YoY) (26.9) Exhibit 15: Efficiency Exhibit 16: Operating profit C/I (%) Opex/ Other income OP Rs bn (LHS) Growth (%, YoY) (10.0) (20.0) Q 1 F Y 1 2 Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 Q 3 F Y 1 4 Q 1 F Y 1 2 Q 2 F Y 1 2 Q 3 F Y 1 2 Q 4 F Y 1 2 Q 1 F Y 1 3 Q 2 F Y 1 3 Q 3 F Y 1 3 Q 4 F Y 1 3 Q 1 F Y 1 4 Q 2 F Y 1 4 Q 3 F Y February

6 Exhibit 17: Provisions Provisions (Rs bn) Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 NPA % credit cost (annualized) MTM (2.71) 0.76 (1.34) (0.93) (1.20) SA Others 0.08 (0.07) (0.02) Tax (3.22) (4.83) Total February

7 Financial summary Profit & Loss Statement (Rs bn) Y/E March FY11 FY12 FY13 FY14E FY15E Net Interest Income Other Income Operating Income Operating Expenses Operating Profit Provisions Profit before Tax Provision for Tax Profit after Tax Balance Sheet (Rs bn) Y/E March FY11 FY12 FY13 FY14E FY15E Liabilities Equity Capital Reserves Net Worth Deposits 3, , , , ,308.2 Borrowings Other Liabilities Total 3, , , , ,257.1 Assets Cash & Bal RBI Bal. with Banks Advances 2, , , , ,415.7 Investments , , ,534.2 Fixed Assets Other Assets Total 3, , , , ,257.1 Key ratios Y/E March FY11 FY12 FY13E FY14E FY15E Valuation EPS (Rs) Book Value (Rs) Adj. Book Value (Rs) P/E (x) P/BV (x) P/ABV (x) Profitability (%) RoANW RoAA Cost / Income Ratio Avg. yield on fund Avg. cost of fund Net Interest Margin Growth (%) Net Interest Income Other Income Operating Profit Net Profit (10.5) Credit Deposit Asset Quality GNPA (Rs bn) GNPA % NNPA (%) PCR % Dividend DPS (Rs) Efficiency Avg. Buss/ Empl (Rs cr) Avg PAT/ Empl (Rs lakh) February

8 Team Coordinates Institutional Equities Team Sector Contact No. Id Harjit Singh Business Head /2 Research Team Amit Shah Capital Goods & Power Ashish R Agrawal Infrastructure, Media ashish.agrawal@almondz.com Chaitra Kanadia BFSI chaitra.kanadia@almondz.com Kushan Parikh Capital Goods & Power kushan.parikh@almondz.com Mangesh Kulkarni BFSI & Midcaps mangesh.kulkarni@almondz.com Sales Team Shyam Gupta Sales Trader shyam.gupta@almondz.com Derivatives Team Chandrashekhar Kabadi Sales Trader chandrashekhar.kabadi@almondz.com Rameshwar Singh Sales Trader rameshwar.singh@almondz.com Visit us at Please send your feedback to research@almondz.com Disclaimer This Document has been prepared by Almondz Global Securities Ltd. The information, analysis and estimates contained herein are based on Almondz s assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Almondz opinion and is meant for general information only. Almondz, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. Almondz expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Almondz, its affiliates and their employees may from time to time hold positions in securities referred to herein. Almondz or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document. 7 February