Buy Bank of Baroda Ltd for the Target Rs 350 by Emkay Global Financial Services Ltd
BoB reported a sharp decline in PAT to Rs12.8bn, hit by the one-off out-of-court settlement of the legacy NMC Group litigation, fully absorbed in 1Q. Operating profit declined 1.3% yoy/10.4% qoq, led by a sharp fall in other income. Credit growth remained healthy at 17.6% yoy, driven by RAM and overseas segments; corporate loan growth improved to 15% yoy but declined 6.5% qoq due to conscious portfolio recalibration. Core NIM moderated by 12bps qoq to 2.8%, with guidance reiterated at 2.75 2.95%, supported by improved asset pricing and moderation in incremental deposit costs. BoB raised over $600mn through the FCNR(B) route and maintained credit growth guidance of 12 14%. The management expects the ECL transition impact on CRAR at ~110bps (earlier 125bps), while BoB continues to carry Rs25bn of floating provisions and plans to raise Rs85bn of capital to support growth and cushion the impact. We finetune our earnings estimates and expect BoB to deliver healthy ~1% ROA over FY27-29E. Thus, we retain BUY and TP of Rs350, valuing the standalone bank at 0.9x Jun-28E ABV and subsidiaries/investments at Rs15/share.
Healthy credit growth; growth and margin outlook intact
BoB reported healthy credit growth of 17.6% yoy (broadly stable qoq; -0.9%), led by the RAM segment and overseas portfolio. Corporate loan growth improved to 15.3% yoy, but declined 6.5% qoq due to conscious portfolio recalibration, including the run-off of select finely-priced assets and seasonal changes in corporate cash flows. NIM declined by 12bps qoq to 2.8%, with the management reiterating its guidance of maintaining NIM within 2.75–2.95%, supported by improved asset pricing (particularly in the non-MCLR corporate book) and moderation in incremental deposit costs. The management maintained its credit growth guidance of 12–14%.
Stable asset quality; ECL impact revised lower to ~110bps
Gross slippages marginally increased to Rs34.2bn/1.15% of loans, while lower recoveries and write-offs drove a 10bps qoq increase in GNPA ratio to 2.0%. NNPA ratio increased to ~0.5%, with a decline in specific PCR to 75.1%. The management now expects the ECL transition impact on CRAR at ~110bps (earlier 125bps), as there is pullback of 15- 20bps due to project loan guidelines. This translates to a ~Rs120bn impact, which will be amortized over the transition period, resulting in an annual impact of ~20–22bps. The bank continues to carry Rs25bn of floating provisions earmarked for ECL provisioning. The management further highlighted that asset quality remains stable, with no signs of incremental stress, supported by government measures for the MSME segment
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. We retain BUY and TP of Rs350, valuing the standalone bank at 0.9x Jun-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.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
