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Asset quality improves further

* Bank of Baroda (BOB) reported a mixed quarter as PAT jumped 88% YoY (in line) aided by higher other income while NIMs declined 26bp QoQ.

* Business growth was modest with loans growing 21% YoY (2% QoQ) while deposits rose 16% YoY (flat QoQ) .

* Asset quality improved as slippages remained in control, which resulted in GNPA/NNPA ratio improving to 3.51%/0.78%. SMA 1/2 stands controlled at 29bp of loans, while restructured book moderated to 1.3% of loans.

 * We largely maintain our earnings estimates and estimate FY25 RoA/RoE at 1.2%/16.9%. We value the stock at INR240 (based on 1.1x FY25E ABV). We reiterate our BUY rating on the stock.

Margin contracts 26bp QoQ; PCR improves to ~79%

* BOB reported 1QFY24 PAT of INR40.7b (+88% YoY; in line), driven by higher other income. NII grew 24% YoY (-4.6% QoQ; in line) as margins declined 26bp QoQ to 3.27% during the quarter. ? ‘Other income’ surged 181% YoY to INR33.2b (38% beat). Treasury income came in at INR3.3b vs. INR2.8b in 4QFY23. In addition, BOB also reported INR6.3b of gains in 1QFY24 from revaluation of investment vs. a loss of INR1.6b in 4QFY23.

* Opex rose 18% YoY (-6% QoQ). C/I ratio, thus, moderated to 45.4% in 1QFY24. PPoP surged 73% YoY to INR78.2b (10% beat), while core PPoP grew 30% YoY.

* Advances grew 2.4% QoQ (up 21% YoY). Among segments, Retail loans rose 3.4% QoQ (+24.8% YoY), while Corporate book grew 2% QoQ. SME/Agri book grew 1%/3% QoQ. In retail, Personal loan rose 12% QoQ. Deposits grew 16% YoY (flat QoQ). Domestic CASA ratio moderated 192bp QoQ to 40.3% . ? On the asset quality front, slippages were under control at INR27.6b (~1.2% annualized), which resulted in 29bp/11bp QoQ improvement in GNPA/ NNPA ratios to 3.51%/0.78%. PCR improved 132bp QoQ to ~79%. Further, total SMA 1/2 was controlled at 29bp of loans, while restructured book moderated to 1.3% of loans.

Highlights from the management commentary

* Within the retail book: home loans grew 18% YoY, auto loans rose 22% YoY and personal loans jumped 82% YoY (on lower base). BOB expects the retail segment to grow 4-5% higher than the industry average.

* NIM to be stable at 3.3% for FY24 (3.3% for FY23 too). Rising COD will put pressure on margin but will be offset by further re-pricing of MCLR book. ? BOB has maintained its guidance of 1% RoA for FY24 (1.11% in 1QFY24).

* Credit cost for normal cycle will be 1%

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