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Placed as a top pick in May 2023, BoB guides for stability

Our view – Management broadly guides for a repeat of FY24

Asset quality - There was a moderate sequential rise in slippages but broadly within guided range, while management guided for sustained control of slippages in FY25: For the quarter, gross NPA additions amounted to Rs 32.0bn, translating to an annualised gross slippage ratio of 1.2%, while recoveries and upgrades amounted to Rs 20.1bn. Gross NPA additions had amounted to Rs 26.18bn during 3QFY24. The gross slippage ratio guidance for FY24 was 1-1.25% and the outcome has been well within this range. This was despite 2 large wholesale slippages of an aviation account worth Rs 17bn (Go First) and an international account worth Rs 5bn. The bank has guided for a slippage ratio of 1-1.25% once again for FY25. Management seemed to suggest that the potential impact on credit cost from the RBI Draft on Project Finance may be small to the tune of 10 bps.

Net interest margin - Margin was boosted sequentially by strong recoveries, while management guided for sustenance of NIM: Global NIM at 3.27% was up/down 17bps/- 26bps QoQ/YoY. Margin was boosted sequentially be strong year-end recoveries, excluding which the margin for the quarter would have been 3.15%, implying a still creditable expansion in underlying margin by 5 bps QoQ. The bank has, once again, guided for a NIM of 3.15% plus or minus 5 bps.

Balance sheet growth – Loan growth outcome was reasonable and management guided for similar to slightly better growth in FY25: Whole bank advances grew 3.9%/12.5% QoQ/YoY driven sequentially by Corporate, Retail andAgri. loans. The bank has guided for a loan growth of 12-14%, driven by retail loans. On the liability side, the bank has guided for a deposit growth of 10-12%, with focus on CASA and retail TD. The CD ratio has been reduced by 200 bps QoQ to about 82%. The bank is aiming to keep the CD ratio at 80-82%, with a bias towards 80%.

We maintain ‘Buy’ on BoB with a revised price target of Rs 350: We value the bank at 1.2x FY26 P/BV for an FY25E/26E RoE profile of 16.0/16.3%. We assign a value of Rs 18.5 per share to the subsidiaries, based on SOTP. We had flagged BoB as a top pick in our report dated May 2023.

Result Highlights (See “Our View” above for elaboration and insight)

* Opex control: Total cost to income ratio was at 49.3% down/up by -29/314bps QoQ/YoY and the Cost to assets was at 2.0% up by 22/8bps QoQ/YoY

* Fee income: Core fee income to average assets was at 0.5%, up 9bps QoQ and 1bp YoY

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