‘Better performance likely’
* Bank of Baroda (BoB) is third largest public sector bank providing products & services across India through network of 8,214 branches. Govt of India (GOI) holds 64% stake in the bank as of Mar 31’ 2021 (FY21). Business size stood at Rs16,73,297 cr as of FY21 (advances at Rs7,06,304 cr + deposits at Rs9,66,996 cr).
* BoB reported loss of Rs-1,047 cr in Q4FY21 due to DTA reversal on account of migration to the new tax regime. Despite improvement in profitability to Rs829 cr (51.8% YoY) in FY21, RoE remained poor at low single digit (1.1%).
* Assets quality movement seems under control with GNPA improved by 76bps QoQ to 8.9% by Q4. Slippages in FY21 remained contained at 2.9%, while it was led by international book which are one-offs and will be upgraded through recovery & classification to restructuring. Out of restructuring request of Rs94.3 bn (1.3% of advances) Rs23.3 bn (0.3% of loans) has been approved. Collection efficiency improved to 94% in Q4 (92% in Q3) and SMA1&2 declined 54bps QoQ to 3.87%. Mgmt expects slippages from the corporate book, which stood at 45.5% of domestic loan book, to remain contained.
* Credit cost is also likely to improve to 1.5% by FY23E from 1.8% in FY21. Alternatively, mgmt is taking initiatives to improve the margin through cost rationalization like optimization of C/D ratio and branch rationalization. While the focus continued on retail book given the muted corporate yield. Capital position at CET 11% remain at satisfactory level which can further be enhanced through capital raise.
* Likely improvement in NIM, higher CASA share, PCR at 67% to positively impact business going forward. Meanwhile, weak collection efficiency, low margin and high share of SMA a/c are key risks to business. Considering the evolving fundamentals, valuation at P/ABV 0.7x seems attractive. RoE is likely to reach near double digit by FY23E from 1.1% in FY21. We assign ‘Buy’ rating to stock with target price of Rs98 valuing bank at 0.7xFY23E.
NII subdues in Q4; operating profit supported by other income
NII grew by 4.5% YoY due to weak interest income. Interest reversals on slippages & interest refund weighed on interest income which contracted by - 10.8% YoY in Q4. Owing to weak NII, NIM reduced by 20 bps QoQ to 2.7% in Q4. Other income grew by 71% YoY mainly due to higher recoveries. C/I ratio reduced to 47.6% in Q4 (48.9% in Q3) led by strong total income despite 21% increase in OPEX. Provisioning reduced by -46% YoY thereby supporting bottom line. Loss in the quarter was due to DTA reversal
Retail credit grows by 10%
Domestic advances grew by 4.9% in Q4 led by strong growth in MSME (10.2%), retail (9.9% YoY) and agriculture (13.2%). Corporate loan growth remained flat in line with mgmt strategy. Retail segment growth was mainly driven by auto loans (up 27.8% YoY), personal loans (up 27.2% YoY) and home loans (up 11.1% YoY). Gold loan grew by 32.6% YoY during the quarter. As per the mgmt, corporate growth to remain muted due to lower yield and focus to remain on high yield retail book. Consolidation in international business will help to improve NIM. Deposits grew by 2.2% YoY while CASA grew by 16.5% and its share rose to 40.2% in Q4.
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