Accumulate Bank of Baroda Ltd for the Target Rs 280 by Prabhudas Liladhar Ltd
Incremental loan mix to determine NIM movement
BOB saw a soft quarter; core PPoP was 8.0% below PLe due to lower domestic loan growth, TWO recovery and higher opex. Loan growth, ex-FCNR was soft at 2.3% QoQ due to muted corporate accretion; RAM growth was decent at 5.5%. FCNR deposits garnered were USD8bn which were retained as a liquidity buffer. Asset quality remains a silver lining with lower net slippages/credit costs. Gain of INR32bn from NSE stake was partly utilized to create prudential provisions of INR13bn which can be utilized against ECL provision requirement in future. As we roll forward to Sep’28 ABV, we tweak multiple to 0.8x from 0.9x but keep TP at INR280. Retain ‘ACCUMULATE’.
Soft quarter; lower TWO recovery and opex drag core PPoP:
NII adjusted for IT refund was INR127.4bn (PLe INR126bn). Reported NIM was steady QoQ at 2.68%. Loan/deposit growth was in-line at 18.5%/16.4% YoY. Other income was INR68.8bn that included gains of INR32bn from NSE stake. Fee at INR20bn was 4% more; TWO recovery at INR7.3bn was a 27.5% miss. Opex at INR84.8bn was 6.9% above PLe due to staff cost, partly offset by lower other opex. Core PPoP at INR70bn was 8.0% below PLe, PPoP was INR114.3bn. GNPA was lesser at 1.78% (PLe 1.87%) due to lower net slippage and higher write-offs. Gross slippage was INR28.5bn (PLe INR35.2bn); recovery was INR22.6bn (PLe INR17.bn). Provisions were higher at INR23.8bn (PLe INR18bn) due to creation of a buffer. Core PAT at Rs42.6bn was in-line; PAT was Rs65.3bn.
Loan growth ex-FCNR was muted:
Loan growth was 6.8% QoQ that was mainly led by 22% QoQ growth in overseas advances (22%) due to FCNR. Bank garnered FCNR(B) deposits of INR774bn and related forex loans were INR628bn. Credit growth ex-FCNR was muted at 2.3% QoQ due to weak corporate accretion at -0.3% while RAM growth was decent: retail (+4.6%), agri (+5.2%), SME (+7.3%). Bank raised guidance for advances growth to 13-15% (from 12-14%) and deposit growth to 11-13% (from 10-12%). Bank expects to achieve upper end of its credit growth guidance, supported by an incremental RAM opportunity of INR 610bn and corporate loan pipeline of ~INR 600bn for H2FY27.
Stake sale gains partly utilised to create buffer: Capital gain of INR32bn on NSE stake was partly utilized to create
(1) prudential provisions of INR13bn against specific loan assets with potential loss risk
(2) contingency provision INR3bn against possible volatility in bond/equity valuation; these provisions were not linked to any single A/C. The bank continues to hold a floating provision buffer of ~INR 25bn.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
