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2025-08-06 12:57:55 pm | Source: Motilal Oswal Financial Services Ltd
Neutral Bank of Baroda Ltd for the Target Rs.260 by Motilal Oswal Financial Services Ltd
Neutral Bank of Baroda Ltd for the Target Rs.260 by Motilal Oswal Financial Services Ltd

Healthy NII, Other income drives earnings

Slippages increase QoQ

* Bank of Baroda (BOB) reported 1QFY26 PAT of INR45.4b (1.9% YoY growth, 9% beat), amid NII beat and higher than expected other income which offsets higher provisions.

* NII declined 1.4% YoY/remained flat QoQ to INR114.3b (6% beat) due to the impact of reclassification of interest in IT refund. Margins contracted 7bp QoQ to 2.91%. Provisions were elevated at INR19.7b (27% higher than MOFSLe), up 27% QoQ.

* Business growth was modest, with advances growing at 13.2% YoY/declining 1.9% QoQ, while deposits grew 9.1% YoY/declined 2.5% QoQ. CD ratio stood at 82.7% (up 48bp QoQ).

* Slippages increased to INR36.9b vs INR31.6b in 4QFY25, due to one international account that slipped this quarter. GNPA/NNPA ratios increased 2bp QoQ each to 2.28%/0.6%, respectively. PCR declined to ~74% vs 75% in 4QFY25.

* We fine-tune our earnings estimates and project FY27E RoA/RoE at 1.14%/16.2%. Reiterate Neutral with a TP of INR260 (0.9x FY27E ABV).

 

Business growth soft; margin decline contained at 7bp QoQ

* BOB reported 1QFY26 PAT of INR45.4b (1.9% YoY growth, 9% beat). NII declined 1.4% YoY/remained flat QoQ to INR114.3b (6% beat). Margins contracted 7bp QoQ to 2.91%. The bank expects margins to remain within the 2.85-3.0% range for FY26.

* Other income grew 88% YoY/declined 1.3% QoQ to INR46.7b (17% beat). Total income, thus, increased 14.4% YoY/remained flat QoQ to INR161b (9% beat).

* Opex grew 14% YoY/declined 3% QoQ (broadly in-line). PPoP grew 15% YoY/declined 1.3% QoQ to INR82.4b (15% beat). Provisions increased 27% QoQ to INR19.7b (27% higher than MOFSLe).

* Advances grew at 13.2% YoY (declined 1.9% QoQ). Among segments, retail book grew at 1.9% QoQ, while corporate book declined 10.2% QoQ. In retail, home loans grew 1.9% QoQ, auto loans grew 1.9% QoQ, and gold loans grew 3.5% QoQ.

* Deposits grew 9.1% YoY/declined 2.5% QoQ. The domestic CASA mix moderated 64bp QoQ to ~39.3%.

* For asset quality, slippages increased to INR36.9b vs INR31.6b in 4QFY25, due to one international account that moved into the resolution account. GNPA/NNPA ratios increased 2bp QoQ each to 2.28%/0.6%, respectively. PCR declined to ~74% vs 75% in 4QFY25.

* SMA 1&2 stood at 0.4% vs 0.33% in 4QFY25.

 

Highlights from the management commentary

* The bank has given an NIM guidance of ~2.85-3.0% for FY26.

* Recovery target for FY26 is >100b.

* The bank plans to add another 300 branches in FY26.

* Its slippages rose this quarter, primarily due to one large international account slipping into NPA and stress from the legacy personal loan book.

* This international account was restructured during COVID-19 and later upgraded. However, it has now moved to the resolution category in the international portfolio. The bank expects to recover the dues and has made a 40% provision against them.

 

Valuation and view: Reiterate Neutral with a TP of INR260

BOB reported an earnings beat, supported by higher-than-expected other income, while provisions remained elevated. NIM contracted to 2.91% (a controlled moderation of 7bp QoQ), with management guiding for further moderation in 2Q and expecting FY26 NIM to remain in the ~2.85-3.0% range. Business growth was modest, with advances rising 13.2% YoY/declining 1.9% QoQ. Slippages remained elevated, led by an international account that the bank expects to recover, while PCR declined to 74% vs 75% in 4QFY25. We fine-tune our earnings estimates and project FY27E RoA/RoE at 1.14%/16.2%. Reiterate Neutral with a TP of INR260 (0.9x FY27E ABV). 

 

 

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