Buy Bank of Baroda Ltd For Target Rs 350 By Emkay Global Financial Services Ltd
Bank of Baroda (BoB) continues to accelerate credit growth, at ~16% YoY, while margin increased by 10bps QoQ to ~2.9%, mainly due to higher interest on income-tax refund and better NPA recovery. This, coupled with lower staff cost benefiting from G-sec yield movement, led to a 10% PAT beat, at Rs56bn/1.1% RoA. The bank does not see any immediate stress due to the West Asia conflict and expects >Rs120bn disbursements in ECLGS due to strong working-capital demand. Separately, the bank has created Rs15bn floating provisions in 4Q to fortify its balance sheet from macro shocks. BoB expects overall loan growth to remain healthy in FY27, though margin could see some pressure. The bank also plans to raise capital (Rs85bn) to support strong credit growth and largely blunt the impact of ECL on capital. We fine-tune our earnings estimates to factor in better growth, and expect the bank to deliver healthy ~1% RoA over FY27-29E. Thus, we retain BUY and TP of Rs350, valuing the standalone bank at 1x FY28E ABV and subsidiaries/investments at Rs15/share
Strong broad-based growth; margin improves due to one-offs
BoB delivered robust credit growth of 16.2% YoY and 6.3% QoQ, driven by broad-based momentum across segments, with sustained growth in RAM and overseas portfolios. Within retail, housing and auto loans saw healthy traction, while gold loans grew sharply by 98% YoY/38% QoQ. NIM increased by 10bps QoQ to 2.89% (vs 2.79% in Q3), mainly due to higher interest on income-tax refund and NPA recoveries. The management expects loan growth to remain healthy in FY27, but core margins to remain under pressure, now guiding for 2.75-2.95%, citing cost pressures.
Asset quality continues to improve
Gross slippages remain contained at ~Rs34.1bn (1.0% of loans), while higher recoveries and write-offs drove a 15bps QoQ improvement in GNPA ratio to 2.0%. NNPA ratio further improved to ~0.5%, with a sharp jump in specific PCR to 76.6%. BoB has sizeable exposure in the Middle East, including corporate and retail, but does not see any immediate credit risk. The management clarified that the Rs15bn floating provision created in 4Q is toward a prudential buffer, to strengthen its balance sheet against potential macro or geopolitical stress, and is not earmarked for the ECL transition
We retain BUY; take comfort from BoB’s healthy RoAs and lower valuations
We fine-tune our earnings estimates to factor in better growth, and expect BoB to deliver healthy ~1% RoA over FY27-29E. Thus, we retain BUY and TP of Rs350, valuing the standalone bank at 1x FY28E ABV and subsidiaries/investments at Rs15/share. Key risks: Macro slowdown leading to slower credit growth; higher margin contraction; and assetquality disruption – particularly in the SME space.
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