Neutral Bank of Baroda Ltd for the Target Rs 275 by Motilal Oswal Financial Services Ltd
Modest quarter; one-off provision mars earnings NIMs decline 12bp QoQ
* Bank of Baroda (BOB) reported 1QFY27 PAT of INR12.8b (down 72% YoY/ 77% QoQ) owing to a one-off provision of INR56.7b (USD600m) to settle legal claims of NMC group.
* NII was up 10% YoY/flat QoQ at INR125.3b (~3% miss). Reported NIMs were down by 12bp QoQ at 2.77%, due to a drop in domestic NIMs. The bank maintains its NIM guidance at 2.75-2.95%.
* Business growth was soft QoQ, with advances growth of 17.6% YoY (down 0.9% QoQ), led by faster growth in RAM segment. Deposits grew by 13.8% YoY (down 0.9% QoQ). CD ratio was largely unchanged at 85.4%.
* Slippages increased to INR34.2b from INR34.1b in 4QFY26. GNPA/NNPA ratios were up 10bp/4bp QoQ at 1.99%/0.50%. PCR declined to 75.1% from 76.7% in 4QFY26.
* We cut our FY27/FY28 earnings estimates by 18.9%/5.2%, factoring in the one-time settlement impact, and expect FY27/FY28E RoA of 0.85%/ 0.96%. Reiterate Neutral with a revised TP of INR275 (0.9x Mar’28E ABV).
Operating performance in line; growth guidance maintained at 12-14%
* BOB reported 1Q PAT of INR12.8b (down 72% YoY/77% QoQ) owing to a one-off exceptional provision of INR56.7b to settle legal claims of NMC group. Adjusting for the one-off impact, PAT came in at INR55.3b.
* NII was up 10% YoY/flat QoQ at INR125.3b (~3% miss). Reported NIMs were down 12bp QoQ at 2.77%. BOB guides for NIMs of 2.75-2.95%.
* Other income was down 26% YoY/13% QoQ at INR34.7b (4% miss) amid softer traction in core fees. Total income thus declined 3% QoQ/1% YoY to INR160b (6% miss).
* Opex was flat YoY/up 6% QoQ, with the bank witnessing an adverse impact of the g-sec yield decline in staff costs. PPoP thus declined 1% YoY/10% QoQ to INR81.3b.
* Provisions increased by 221% YoY/101% QoQ to INR63.2b, as the bank created a one-off provision of INR56.7b.
* Advances growth came in at 16.5% YoY (down 0.9% QoQ), led by growth in RAM segment. Retail book grew 18.4% YoY/2.3% QoQ, aided by broadbased growth. MSME grew 20.3% YoY/2.2% QoQ. The corporate book was down by 6.5% QoQ, with a gradual shift toward MCLR-linked loans.
* Deposits grew by 13.8% YoY (down 0.9% QoQ), while domestic CASA rose 10% YoY (down 4% QoQ). As a result, domestic CASA ratio declined to 37.7% (38.9% in 4QFY26).
* Slippages increased to INR34.2b from INR30.1b. Conservative write-offs for 1Q led to a 10bp QoQ rise in GNPA ratio to 1.99% and 5bp QoQ rise in NNPA ratio to 0.50%. SMA 1&2 declined to 0.07% from 0.18% in 4QFY26.
Highlights from the management commentary
* Mobilized +USD600m in FCNR(B) deposits until now and endeavors to capture total flows of USD4-5b with a combination of FCNR (B) deposits and OFCBs.
* Paid USD600m in an out-of-court settlement on 1st Jul’26. Commercially prudent decision taken with the advice of legal counsellors.
* ECL transition impact would be 110bp on CRAR (INR120b), which can be spread over a few years. ECL steady-state impact on credit costs could be 15-20bp.
* Credit growth guidance maintained at 12-14%. The bank guides for RoA of >1% for the rest of FY27.
Valuation and view: Reiterate Neutral with revised TP of INR275
BOB reported a muted quarter, affected by a one-off provisioning of INR56.7b and a relatively weaker operating performance as NIMs declined 12bp QoQ and core fee income was lower. The bank expects NIMs to remain broadly around 2.75-2.95%. The cost of funds appears to have largely bottomed out, with incremental support expected from improvement in yields. The bank carries a floating provision of INR25b, which shall aid in the transition toward ECL provisioning. Business momentum was soft this quarter, with management maintaining its credit growth guidance of 12-14% going ahead. While there are no inherent concerns on asset quality, we expect credit costs to stay high at ~60bp in FY28, factoring in the ECLrelated transition. We cut our FY27/FY28 earnings estimates by 18.9%/5.2%, factoring in the one-time settlement impact, and expect FY27/FY28E RoA of 0.85%/0.96%. Reiterate Neutral with a revised TP of INR275 (0.9x Mar’28E ABV).
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