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‘Profitability to remain robust’

* BoB reported strong operating performance in Q1FY22 on the back of sharp jump in margin and contained operating cost. Though sequential pick up in provisioning weighed on profit which reported at Rs1,209 cr, lower than market estimates. NII witnessed robust expansion of 15.8% YoY led by sharp decline in domestic cost of deposits (CoD) which eased to below 4% during quarter. NIM shot up by 32QoQ to 3.0% led by strong NII growth. Key factors such as high share of low-cost deposits (CASA at 43.2% in Q1FY22) and improvement in yield on gradual increasing share of high yielding assets in book are providing traction to margin. Advances de-grew by -5.4% QoQ due to -11.5% sequential contraction in corporate credit as the bank sold some low yield corporate assets during the quarter.

* Gross NPAs declined by -5.5% to Rs63,029 cr on account of higher write-offs and upgrades. Fresh slippages was reported at Rs5,129 cr (slippages rate at 0.8%) majorly coming from SME/retail segments. Mgmt expects slippages to remain contained below <2% and credit cost at 1.5-2% in FY22. Bank targets recoveries of Rs14,000 cr in FY22 under various routes such as NCLT, SARFAESI act. Meanwhile restructuring book increased to 2.3% of loans in Q1FY22 from 1.3% in the previous quarter.

* With CET at 11.3%, capital position remains at satisfactory level. Gradually lowering slippages, continued provisioning (PCR at 67.9%) and ~20% provisioning on restructuring book are likely to keep credit cost under check in FY22. Robust operating performance was supported by NIM. BoB is optimizing C/D ratio and disbursing in high yielding retail segments to boost margin while selling selected low yielding corp assets. Credit growth is likely to pick up as corporate cycle turns favorable.

* Considering the evolving fundamentals, valuation at P/ABV 0.6x seems attractive. RoE is likely to reach near double digit by FY23E from 1.1% in FY 21. We maintain ‘Buy’ rating to stock with target price of Rs98 valuing bank at 0.7xFY23E.

Quarterly Performance:

NII grows at strong pace; margin likely to improve further

NII grew by 15.8% YoY in Q1FY22 (4.5% YoY in Q4FY21) mainly driven by sharp decline in interest cost (-21.6% YoY). Domestic CoD reduced to 3.9% as compared to 4.1% in the previous due to decline in deposits rates. NIM witnessed 32bps QoQ jump to 3.0% on the back of strong NII. Domestic NIM improved by 53bps YoY and 39bps QoQ to 3.12%. OPEX remained contained at -9.4% QoQ and C/I further improved to 47.5% during quarter. Provisioning increased 14.7% QoQ which weighed on bottom line, however bank managed to report profit at Rs1,209 cr compared to losses in previous and year ago quarter.

Advances contracts due to corporate segment

BoB reported -2.3% YoY decline in the advances book due to sharp contraction at -11.9% YoY in corporate book. Share of corporate book reduced to 43% v/s 47.6% in the same quarter of year ago period. Retail advances grew by 7% YoY on the back of strong growth in gold, auto and personal loans. MSME credit growth remained flat while agriculture and misc. grew at 9.4% YoY and 18.1% YoY. Deposits de-grew by -0.3% YoY due to -22.7% contraction in international deposits. Alternatively, domestic deposits grew by 3% YoY.

Valuation and View

Gradually lowering slippages, continued provisioning (PCR at 67.9%) and ~20% provisioning on restructuring book are likely to keep credit cost under check in FY22. Robust operating performance was supported by NIM. BoB is optimizing C/D ratio and disbursing in high yielding retail segments to boost margin while selling low yield corp assets. Credit growth is likely to pick up as corporate cycle turns favourable. Considering the evolving fundamentals, valuation at P/ABV 0.6x seems attractive. RoE is likely to reach near double digit by FY23E from 1.1% in FY 21. We maintain ‘Buy’ rating to stock with target price of Rs98 valuing bank at 0.7xFY23E.

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