Buy Bank of Baroda Ltd For Target Rs.325 By Emkay Global Financial Services
Better growth and asset quality performance
Bank of Baroda (BoB) reported strong PAT beat at Rs52bn/RoA of 1.3%, mainly due to higher other income (led by treasury gains and recovery in TWO accounts), and partly offset by higher provisions (including contingent provisions). After realigning the book in Q1, BoB reported healthy broad-based credit growth at 12% YoY/7% QoQ. However, NIM shrunk by 8bps QoQ to 3.1% due to lower yields. Headline GNPAs declined by 38bps QoQ to 2.5% in absence of lumpy NPAs, similar to a few peers. Management indicated that 1/3rd of aviation exposure against guarantee has been recovered and the rest is under legal process. The management has revised its guidance for FY25 with credit growth of ~11-13% and deposit growth of 9-11%, while NIMs likely to remain range-bound at 3.15% +/-5bps. We largely retain our earnings estimates and expect the bank to deliver healthy RoA of 1.1-1.2%/RoE of 15-16%. We retain BUY on BoB with an unchanged TP of Rs325 rolling forward on 1.1x SA Sep-26E ABV and subs value at Rs15/sh.
Growth revives, but margin contracts due to reversal of penal interest
BoB reported strong broad-based credit growth of 12% YoY/7% QoQ (after realigning the book in Q1), mainly due to healthy overseas/domestic corporate as well as retail book. Within retail, the growth remain healthy in the range of 13-25% YoY. Further, the low-base GL book continues to see traction (~4% of the overall retail book), but PL loan growth moderated as the bank tightened non-salaried PL and also stopped its digital PL (Rs110-120bn). Deposit growth too was healthy at 9% YoY/4% QoQ, but focus remains on retail CASA and TD. NIM compressed by 8bps QoQ to 3.1% (albeit remains in the guidance of 3.15% +/-5bps), mainly due to impact of reversal of penal interest (5bps ie Rs1.7-1.8bn), increase in CoD, and higher growth in corporates. Management has lowered its guidance of credit growth to ~11-13% and deposit growth to 9-11%.
Slippages were lower; higher SMA book owing to technical delay in PSUs
Fresh slippages remained range-bound at Rs31bn/1.3% of loans, mainly due to lower slippages across the segment (except agri book) leading to steady improvement in GNPA ratio to 2.5%. However, SMA book increased to Rs 53bn/0.5% on account of technical delay in payment by state PSUs amounting to Rs33-34bn. The bank has recovered 1/3rd of the guaranteed aviation exposure (ie Rs11bn) and recovery of the remaining 2/3rd exposure (collateralized) is under legal process. The bank reiterates its slippages guidance in the range of 1-1.25% and credit cost guidance of <0.75% in FY25E.
We retain BUY on BoB with unchanged TP of Rs325
We largely retain our earnings estimates and expect the bank to deliver healthy RoA of 1.1-1.2%/RoE of 15-16%. We retain BUY on BoB with an unchanged TP of Rs325 rolling forward on 1.1x SA Sep-26E ABV and subs value at Rs15/sh. Key risks: Macro slowdown leading to slower credit growth, margin contraction, and asset-quality disruption.
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