Buy Bank of Baroda Ltd for the Target Rs 300 by Emkay Global Financial Services Ltd
BoB reported a sharp ~25% PAT beat at Rs65bn (ROA of ~1.3%), led by higher other income from NSE stake sale gains (Rs13bn) and investment revaluation. Advances grew 18.5% yoy, led by the RAM segment and overseas portfolio (aided by FCNR(B) leverage), while ex-FCNR(B) growth stood at 13.5%. Deposits grew 16.4% yoy, aided by FCNR(B) mobilization of Rs1,026bn, which is being maintained as stored liquidity and can be deployed in coming quarters. NIM moderated to 2.74%, with the management retaining FY27 guidance of 2.75–2.95%. Asset quality improved qoq, with the bank building prudential buffers through additional provisions of Rs16bn (Rs13bn toward specific NPAs and Rs3bn toward investment valuation risks), while remaining cautious on gold loan growth. The bank raised FY27 credit growth guidance to 13–15% (from 12–14%) and deposit growth guidance to 11–13% (from 10–12%) and expects ROA to remain ~1% for FY27. We fine-tune our earnings estimates and expect BoB to deliver a healthy ~1% ROA over FY27-29E. Thus, we retain BUY and TP of Rs300, valuing the standalone bank at 0.8x Sep-28E ABV and subsidiaries/investments at Rs15/share.
RAM and FCNR(B)-led healthy growth; credit guidance raised to 13–15%
BoB reported healthy credit growth of 18.5% yoy/6.8% qoq, led by the RAM segment and overseas portfolio (aided by FCNR (B) leverage) while the corporate portfolio remained moderate at 6.3% yoy/ flat qoq. Excluding FCNR (B), the bank’s global advances grew by 13.5% yoy. The bank mobilized Rs1,026bn through FCNR(B), which is being maintained as stored liquidity and can be deployed either to retire high-cost bulk deposits or fund incremental credit growth, depending on requirements. NIM compressed by 3bps to 2.74%, with the management retaining its FY27 guidance of 2.75–2.95% and expecting an improvement in 2HFY27, driven by repo-linked loan repricing and the full benefit of corporate loan repricing, while deposit costs remain contained. The bank upgraded FY27 credit growth guidance to 13–15% (from 12–14%) and deposit growth guidance to 11–13% (from 10–12%)
Asset quality continues to improve; additional provisions buffers built
Gross slippages declined to Rs ~28bn/ 0.9% of loans, with higher recoveries and write offs driving 21bps improvement in GNPA to ~1.8%. NNPA ratio improved to 0.4% with an increase in specific PCR to 79.5%. BoB strengthened its prudential buffers through additional provisions of Rs16bn (Rs13bn toward specific NPAs and Rs3bn as a contingency against investment valuation volatility), while remaining cautious on gold loan growth.
We retain BUY and TP of Rs 300
We fine-tune our earnings estimates and expect BoB to deliver a healthy ~1% ROA over FY27-29E. We retain BUY and TP of Rs300, valuing the standalone bank at 0.8x Sep-28E ABV and subsidiaries/investments at Rs15/share. Key risks: macro slowdown leading to slower credit growth; higher margin contraction; and asset-quality disruption, particularly in the SME space.
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