IGI Logo

In-line adjusted earnings; RoA outlook remains healthy

Asset quality stable

* Bank of Baroda (BOB) reported in-line 4QFY24 PAT of INR48.9b, up 2% YoY, driven by higher other income. NIMs improved 17bp QoQ, partly supported by recoveries.

* Provisioning expenses were high as the bank further provided for aviation exposure. Opex was also high due to pension provisions and a decline in the discount rate.

* Business growth was healthy, with loans growing 13% YoY (4.1% QoQ) and deposits increasing 10% YoY (6.6% QoQ). The CD ratio, thus, moderated to 80.3%, while LCR too decreased to 121% (vs. 133% in 3Q), aiding margins.

* Slippages increased to 1.2%. Healthy advances growth enabled a decline in GNPA/NNPA by 16bp/2bp QoQ to 2.9%/0.7%. PCR was stable at 77.3%.

* We raise our FY25/FY26 EPS estimates by 1.9%/2.8% to account for stable margin and contained provisions. We estimate FY26 RoA/RoE of 1.22%/17.3%. We reiterate our BUY rating on the stock.

Business growth robust; RoA to remain above 1% in FY25-26E

* PAT grew 2% YoY to INR48.9b (in line), driven by higher other income, which was partly offset by higher opex and higher provisions. Healthy recoveries led to a 17bp QoQ improvement in NIMs to 3.27%. Excluding the one-off item, NIMs stood at 3.15%.

* Other income jumped 21% YoY/49% QoQ to INR41.9b (22% beat), aided by seasonally strong fee income, robust treasury income at INR5.2b (vs. INR380m in 3Q) and interest on IT refund of INR3.13b. Opex grew 14% YoY (8% higher than MOFSLe) due to the wage settlement (INR4b) and the impact (INR4b) of a lower discount rate given the fall in bond-yields. PPoP, thus, increased 16% QoQ to INR81.1b (8% beat).

* Provisions increased 95% QoQ to INR13b (35% higher than MOFSLe). During the quarter, BOB made additional provisions of INR5.5b for aviation exposure, and the account is now 100% provided for.

* Advances grew 4.1% QoQ (up 13% YoY). Among segments, retail loans grew healthy at 6% QoQ (21% YoY), while corporate book grew 5% QoQ (12% YoY). SME/Agri book grew 2.9%/3.3% QoQ. In retail, personal loans grew 8% QoQ (up 52% YoY), gold loans grew 24% QoQ (up 88% YoY), and auto loans grew 4% QoQ (up 24% YoY).

* Deposits grew 10% YoY (7% QoQ). Heavy seasonal CA flows led to a 64bp QoQ improvement in the CASA ratio to 41.3%. BoB expects healthy growth in advances at ~12%-14% in FY25 and looks to reduce growth in PL.

* On the asset quality front, slippages increased to 1.2%. Healthy loan growth enabled a decline in GNPA/NNPA ratios by 16bp/2bp QoQ to 2.9%/0.7%. PCR was stable at 77.3%. SMA 1/2 moderated to 15bp of loans.

* RoA improved to 1.25% in 4Q (1.17% for FY24), while RoE stood at 20.8%.

Highlights from the management commentary

* Growth in total advances is expected to be 12%-14% in FY25. Deposit is expected grow ~10-12% with a focus on CASA and retail term deposits. The bank is expected to maintain a CD ratio in the range of 80-82%.

* BOB maintains previous NIM guidance of 3.15% (+/- 5bp).

* There has been some seasonal effect of year-end recoveries and excluding that NIMs would have been ~3.15% for 4QFY24.

* BOB has increased its MCLR rate, which improved lending yields.

Valuation and view: Reiterate BUY with a TP of INR300

BOB reported an overall steady quarter characterized by one-offs. Adjusting for the one-offs, RoA/RoE stood at healthy levels. Provisions were high as the bank has provided for its aviation exposure (100% provided). Margins expanded 17bp QoQ to 3.27%. Loan growth was healthy at 15% YoY and the bank expects loan growth of 12-14% in FY25. Deposit growth was healthy, while the CASA mix improved. The bank has reduced its dependency on bulk deposits while shifting its focus on CASA and retail TDs, which will support NIMs. BOB has guided for a consistent CD ratio of 80-82%. Asset quality continued to improve, with NNPA at 0.7%, while lower SMA book provides further comfort on asset quality. We raise our FY25/FY26 EPS estimates by 1.9%/2.8% to account for stable margin and contained provisions. We estimate FY26 RoA/RoE of 1.22%/17.3%. We value the stock at INR300 (1.1x FY26E BV) and reiterate our BUY rating on the stock.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412