PL Stock Report: Bank of Baroda (BOB IN) - Q1FY24 Result Update - NIM lower but provision buffers increased - BUY

Bank of Baroda (BOB IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs191 | TP: Rs235

Q1FY24 Result Update - NIM lower but provision buffers increased

Quick Pointers:

♦ Miss of 3% on core PAT driven by lower NIM and higher tax rate.

♦ Balance sheet stronger; loan growth for FY24E guided at 14-15%.

BOB saw a mixed quarter; while core PAT at Rs40.7bn missed PLe by 3% led by lower NII and higher tax rate, asset quality was stable with more buffers created. Loan growth guidance is maintained at 14-15%, while over medium term, share of retail might enhance to 53% (now 47%). Balance sheet further fortified, as PCR was shored up by Rs2bn while coverage on stressed airline was increased from 38% to 50%. OTR reduced QoQ from 1.7% to 1.3%. NIM decline of 20bps QoQ was highest compared to PSU peers, attributable to decline in reported yields as credit flow for the quarter was led by lower yielding segments. While bank would like to maintain NIM for FY24 at FY23 levels, we are factoring an 8bps decline in NIM to 3.08%. MCLR repricing would be a key to upgrade in NIM. Basis Q1’24 results, SBI delivered better NII/NIM and in near term SBI could outperform BOB on NIM given higher CASA and unsecured share. We slightly tweak our multiple from 1.15x to 1.11x but keep TP unchanged at Rs235. Retain ‘BUY’.

♦ Slight miss on core PPoP due to lower NII; higher tax drags earnings: NII was a miss at Rs110bn (PLe Rs113.3bn) led by lower NIM as loan growth was in-line. NIM was lower at 3.33% (PLe 3.41%) as yields/cost of funds were a bit lower/higher. Loan growth was 20.5% YoY (PLe 20.6%) while deposit growth was lower at 16.2% (PLe 19.5%). Other income was stronger at Rs33.2bn (PLe Rs24.2bn) on account of higher treasury and better fee income. Opex was lesser at Rs64.9bn (PLe Rs66.2n). PPoP was Rs78.2bn while core PPoP at Rs68.7bn was 1.2% below PLe. Asset quality was better; while GNPA was in-line at 3.52%, NNPA was lower at 0.78% due to increase in PCR by 1.3% to 78.5%. Provisions were at Rs19.5bn (PLe Rs15bn). PAT was Rs40.7bn (PLe Rs42.0); core PAT at Rs42bn missed PLe by 3% due to higher tax rate at 31%.

♦ Credit growth QoQ was broad based: Sequential loan growth at 2.4% was led by corporate (1.9%), retail (3.4%), overseas (2.5%) and agri (2.7%). Retail accretion was led by home and personal. Bank would continue focus on unsecured given its contribution is only 2.2% to credit. Bank guided for loan growth of 14-15% in FY24E; corporate could grow by 12-13%, retail accretion may be 18-20% and overseas may grow by 8-12%. Retail contribution is expected to enhance over medium term and bank targeting a corporate and non-corporate mix of 35:65 (vs 43:57 now). While deposit accretion was muted (-0.3% QoQ) domestic TD growth at 3.6% was largely driven by wholesale TD (+11.0%). Deposit formation over the last 1-yr has been led by wholesale since bank would like to benefit when repo rate starts to decline.

♦ Stable asset quality; balance sheet strengthened: Asset quality was stable as net slippages were controlled while provisions included (1) Rs2bn to shore up PCR and (2) Rs1.3bn on stressed airline account. Exposure to the stressed airline is Rs13bn against which provision has been increased from Rs5.0bn to Rs6.3bn. Bank expects no LGD on this account as 30% exposure is backed by ECLGS, 35% is guaranteed by consortium collateral and PCR is adequate at Rs6.3bn (~50%). OTR further dropped QoQ from 1.7% to 1.3% with sufficient provision cover. As balance sheet is fortified coupled with a benign asset quality environment, we reduce provisions for FY24/25E by 20/18bps.

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