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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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