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Result and Price Analysis:

In 4QFY21, Bank of Baroda (BOB) has delivered an expected result on operating, assets quality as well as on collection efficiencies. Moreover, resumption of asset classification has translated in slippages of ₹123bn. However, the bank has witnessed total slippages (₹213bn) lower than FY20 slippages of ₹450bn. Furthermore, the collection efficiencies of domestic loans stood at 96% v/s 93% declared earlier.

Its reported GNPA (8.87% v/s 9.63% in 3QFY21) and NNPA (3.09% v/s 3.36% in 3QFY21) declined substantially along with higher PCR of 81.8%. The bank has witnessed stable net advances (2.3% YoY, 1.1% QoQ) and deposit growth (2.2% YoY, 1.3% QoQ) with better liquidity position (LCR of 140% +). Moreover BOB has reported net loss of ₹10.5bn on the back of DTA adjustments (Tax: ₹37.3bn v/s ₹5.7bn in 3QFY21).

Factoring the difference between the reported NNPA and pro-forma NNPA, we believe the covid provision (₹32bn) could absorb half of the existing stress. Remaining half can be managed with internal accruals. The profitability may soar with lower provision and lower tax regime. We believe the negatives are in the price and inexpensive valuation (0.6x PBV) makes BOB an attractive BUY.

Gazing the core:

Resumption of asset classification has translated in slippages of ₹123bn. However, the bank has witnessed total slippages (₹213bn) lower than FY20 slippages of ₹450bn. The reduction (upgradation & recovery) stood at ₹88bn v/s ₹70.1bn in the previous quarter. The Bank’s SMA 1&2 book inched down to 3.87% v/s 4.41% in the previous quarter. The standard restructured amount stood at ~₹94bn (1.34% of advances) and came down marginally from 3QFY21. The lower stress formation acknowledges our conviction of downtrend in NPA.

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