Wednesday, December 30, 2015

BOB: Banking on its new Chief

In the banking space, many public sector banks are available cheap, but they have found few takers, given their muted earnings and high stressed assets. Private banks, on the other hand, trade at a steep premium, thanks to their steady growth in earnings. But if you are a conservative investor, you might want to steer clear of expensive stocks that carry higher risk. Instead, betting on stocks that are good dividend payers offers stability during a downturn.

Bank of Baroda, for instance, has been a consistent dividend payer. In the last three years, its dividend payout has been about 22 per cent. In 2014-15, even as the bank’s earnings fell about 22 per cent year-on-year, dividend payout remained rock steady at 22 per cent. BOB also looks attractive from a dividend yield perspective. After rallying 65 per cent in 2014, the stock of BOB has fallen 25 per cent in 2015 so far, as hopes of a quick recovery faded. Such stocks with high dividend yield make for better value picks. Currently the dividend yield of BOB stands at about 2 per cent, higher than the average of all CNX 500 companies at 1.4 per cent.

On the core business front, however, the bank is likely to witness earnings pressure for another couple of quarters. In the latest September quarter, the bank’s slippages have been the highest in many quarters and the gross non-performing assets moved up to 5.56 per cent of loans, taking the total stressed assets (including restructured) to a little over 10 per cent. BOB’s loan growth has also been muted in the last few quarters.

Nevertheless, BOB still remains one of the better capitalised PSBs and boasts of a strong domestic presence. It will directly benefit from an improvement in economic growth over the long run. The new MD and CEO’s non-PSU experience could also help , with his focus on asset quality, move to rebalance the portfolio and use of technology.

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