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Bank of Baroda reported in-line results – PAT, at INR 44.6bn (+9.5% YoY, -8.8% QoQ), was 1.6% below JMFe. Both loans and deposit book contracted QoQ - net advances (+8.8% YoY/-1.7% QoQ) came in at INR 10,479bn and deposits (+8.9% YoY/-1.5% QoQ) at INR 13,070bn. NII grew +5.5% YoY/-1.6% QoQ to INR 116bn, 2% below JMFe, with calculated NIMs contracting 9bps QoQ to 2.9%. Non-interest income disappointed at INR 31.8bn, - 25.1% YoY/-40.7% QoQ – recoveries from previously written-off accounts contracted 16% YoY to INR 5.5bn and treasury income declined 74.4% YoY to INR 3.0bn, while core fee income contracted 7.1% YoY to INR 11.0bn. Expenses were in-line at INR 69.3bn, with employee expenses growing 6.9% YoY/-11.7% QoQ to INR 40.1bn, and other expenses growing 6.3% YoY/-12.6% QoQ to INR 29.1bn. Led by lower non-interest income, PPOP was a 10% miss on JMFe, at INR 71.6bn. However, credit costs were contained – provisions came in at a benign INR 10.1bn, with 50bps of specific (NPA) provisions. This helped the bank report an in-line PAT of INR 44.6bn, against JMFe INR 45.3bn. The company maintained its guidance of 10-12% deposit growth, 12-14% loan growth and credit costs of 10% QoQ. The wage revision impact is now in the base, and we expect employee expenses to grow linearly for next 3 years. We lower our growth and opex estimates, and expect the bank to deliver 1.0% RoA/14.7% RoE by FY26. With this, we continue to value the bank at 1.0x FY26e for a revised Target Price of INR 280. Maintain BUY.

* Both loan and deposit books contracted in a seasonally weak quarter: Net advances (+8.8% YoY/-1.7% QoQ) came in at INR 10,479bn Loan book contraction was led by a 5.9% QoQ decline in wholesale book, which comprises 45% of domestic advances. The management mentioned that this drag was temporary, and the bank has a good demand pipeline for corporate loans. Retail credit growth was strong at +20.9% YoY/3.5% QoQ – with housing and non-housing books growing 2.6%/4.5% QoQ. SME and agriculture books grew 0.4% each in 1Q. Meanwhile, deposits came in (+8.9% YoY/-1.5% QoQ) at INR 13,070bn. CASA ratio was strong at 40.6%, +30bps YoY/-70bps QoQ. With CD ratio comfortable at 80.2%, management stayed away from bulk deposits to maintain NIMs. Domestic NIMs (reported) contracted 15bps QoQ to 3.3%, led by a 26bps contraction in (reported) yield on advances. Improvement in investment yields enabled the bank to report, largely, in-line NII at INR 116bn.

* Costs contained, expect benign employee expenses growth over FY25-FY27: With the bank bearing the impact of wage revision, and retirals and gratuity thereon, in FY24, we expect to see benign rise in employee expenses in FY25. 1Q showed signs of that. Expenses for the quarter were in-line at INR 69.3bn, with employee expenses growing 6.9% YoY/-11.7% QoQ to INR 40.1bn, and other expenses growing 6.3% YoY/-12.6% QoQ to INR 29.1bn

* Weak PPOP compensated by lower provisions: PPOP, at INR 71.6bn, was a miss on JMFe. This was led by lower non-interest income, which disappointed at INR 31.8bn, -25.1% YoY/-40.7% QoQ – recoveries from written-off accounts contracted 16% YoY to INR 5.5bn and treasury income declined 74.4% YoY to INR 3.0bn, while core fee income contracted 7.1% YoY to INR 11.0bn. Credit costs were contained – provisions came in at a benign INR 10.1bn, with 50bps of specific (NPA) provisions. This helped the bank report an in-line PAT of INR 44.6bn.

* Valuation and view: We see limited levers for NIM expansion for the bank, and believe recoveries from previously written-off accounts have peaked out, in-line with mgmt. guidance of INR 100bn in recoveries in FY25. At the same time, the bank was able to control growth in its opex, with both employee expenses and other expenses contracting by >10% QoQ. The wage revision impact is now in the base, and we expect employee expenses growth to be contained within 10% YoY, till FY26. We lower our growth and opex estimates, and expect the bank to deliver 1.02%/14.7% RoA/RoE by FY26. With this, we continue to value the bank at 1.0x FY26e for a revised Target Price of INR 280. Maintain BUY.

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SEBI Registration Number is INM000010361