PL Stock Report: Bank of Baroda (BOB IN) - Q2FY24 Result Update - Better fees but NIM guidance lowered - BUY
Prabhudas Lilladher Pvt Ltd
Bank of Baroda (BOB IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd.
Rating: BUY | CMP: Rs204 | TP: Rs240
Q2FY24 Result Update - Better fees but NIM guidance lowered
Quick Pointers:
§ Core PAT beat of 9.4% mainly driven by higher fee income.
§ Focus on healthy CASA growth and slowing wholesale deposits.
BOB saw a mixed quarter; while core PPoP at Rs61bn beat PLe by 7.4%, asset quality was a miss led by higher slippages. NII was largely in-line and core PPoP beat was due to 16% higher fee income which largely emanated from the corporate segment due to various initiatives taken. While NIM came in as expected, bank has reduced its NIM guidance for FY24 from 3.3% to 3.15% as deposit cost would catch up. Loan growth guidance for FY24 is maintained at 14-15%, while non-corporate share is targeted to reach 65% (now 58%) that would be driven by strong retail growth. BoB has decided to slow down wholesale deposits and focus on garnering CASA via RM-based model. Apart from stressed airline (Rs17.7bn), a middle-east based account from real estate sector slipped to NPA. We maintain our multiple at 1.1x but increase TP from Rs235 to Rs240 as we roll forward to Sep’25 ABV. Retain ‘BUY’.
§ Beat on core PPoP due to higher fees; miss on asset quality: NII was in-line at Rs108.3bn (PLe Rs108.5bn). NIM was as expected while loan growth a bit higher. NIM was 3.16% (PLe 3.17%); yield on IEA and cost of funds were a tad lower. Loan growth was 3.6% QoQ and 19.3% YoY (PLe 18.6%). Deposit growth too was higher at 14.6% YoY (PLe 13.1%). Other income was stronger at Rs41.7bn (PLe Rs31.3bn) on account of higher fees, dividend and TWO. Opex was 1.8% lower to PLe at Rs70bn due to staff cost. PPoP was Rs80.2bn while core PPoP at Rs60.9bn was 7.4% ahead of PLe. Asset quality was a miss; GNPA/NNPA were 5/2bps more at 3.32%/0.76% due to higher slippages. Provisions were as expected at Rs21.6bn (PLe Rs21bn). PAT was a beat at Rs42.53bn while core PAT at Rs28.5bn was 9.4% ahead of PLe.
§ Credit growth QoQ led by overseas, retail and SME: Sequential loan growth at 3.6% was led by overseas (6.4%), retail (5.2%) and SME (3.9%). Retail accretion was broad based led by home, auto and personal. Bank maintained growth guidance of 14-15% for FY24E with likely accretion in corporate, retail and overseas being 12-13%, 20-22% and 15%. Retail growth should sustain and focus would be on optimization of loan origination channels and enhancing customer relationships. Hence targeted corporate to non-corporate loan mix by FY26E is 35:65 (now 42:58). Deposit accretion (4.1% QoQ) was led by domestic TD (3.0%) and overseas (17.3%). On the TD side while wholesale deposit share is high at ~30%, this would benefit when repo rate starts to decline. Incrementally bank would like to slow down its wholesale growth and grow its CASA book by strengthening its RM based structure.
§ NIM guidance reduced; miss on asset quality: Bank lowered its FY24 NIM guidance from +3.3% to +3.15% due to higher cost of deposits. BoB would like to contain CoD due to aggressive CASA approach and reduction in wholesale deposits. Fee income at Rs22.4bn surprised positively by 16% mainly from corporate fees led by new initiatives like (1) on-boarding customers having strong cash flows (2) targeting higher wallet share via customer relationship managers for large and mid-corporates. Asset quality was a miss given higher slippages largely due to Rs5.8bn from overseas book. A middle-east based real estate account (completely collateralized) slipped to NPA. As expected, airline account (Rs17.7bn) moved to NPA but PCR is adequate at 50%.