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Lower provisions drive earnings; margins improve 3bp QoQ

Asset quality remains robust

* Bank of Baroda (BOB) reported 3QFY24 PAT of INR45.8b, up 19% YoY (9% beat), driven by lower provisions and a 3bp QoQ expansion in margins.

* Other income declined 21% YoY to INR28.1b, affected by weak treasury income. Total income, thus, declined 3% YoY (6% miss).

* Business growth was healthy, with loans growing 15% YoY (2.6% QoQ) and deposits increasing 8% YoY (flat QoQ). The CD ratio, thus, increased sharply to 82.2%, though LCR remained comfortable at 133%.

* Slippages improved to 0.95%. GNPA/NNPA ratios, thus, improved by 24bp/6bp QoQ to 3.1%/0.7%. PCR stood stable at 77.7%.

* We increase our FY24 earnings estimate by 4.4% and estimate FY25 RoA/RoE of 1.2%/17.8%. We reiterate our BUY rating on the stock.

Slippages improve to 0.95%; RoA to remain steady

* PAT grew 19% YoY to INR45.8b (9% beat), driven by lower provisions and a 3bp QoQ improvement in margin to 3.1%.

* Other income declined 21% YoY to INR28.1b (25% miss). The bank reported treasury profits of INR380m vs. INR4.8b in 2QFY24. Opex grew 12% YoY (4% lower than our estimate). PPoP declined 15% YoY to INR70.2b (8% miss).

* Provisions declined 72% YoY to INR6.7b (67% lower than our estimate). During the quarter, BoB made a contingent provision of INR0.5b for its AIF exposure and made wage settlement provisions of INR4.25b (outstanding provisions INR17.45b).

* Advances grew 2.6% QoQ (up 15% YoY). Among segments, retail loans grew 5% QoQ (22% YoY), while corporate book grew 2% QoQ (13% YoY). SME/Agri book grew 2.2%/2.7% QoQ. In retail, personal loans grew 8% QoQ (up 61% YoY), gold loans grew 21% QoQ (up 78% YoY), and auto loans grew 8% QoQ (up 24% YoY). Deposits increased by 8% YoY (flat QoQ). The CASA ratio improved 81bp QoQ to 40.7%. BoB expects advances growth to be ~14%-16% in FY24 and looks to reduce growth in the PL segment.

* On the asset quality front, slippages improved to 0.95%. GNPA/NNPA ratios thus improved by 24bp/6bp QoQ to 3.1%/0.7%. PCR stood stable at 77.7%. Total SMA 1/2 remained under control at 24bp of loans.

* RoA stood at 1.2% in 3Q (1.15% for 9MFY24), while RoE stood at 19.9%.

Highlights from the management commentary

* The bank guides for NIMs at 3.15% (+/- 5bp). BoB, as previously guided, continues to reduce its dependency on bulk deposits and focus on retail deposits.

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