Q3FY23 Review: Bank of Baroda: Strong quarter, outlook positive

6 Feb 2023 , 01:00 PM

BOB’s reported profit of Rs38.5bn in Q3FY23 was sharply higher than estimates, owing to a stronger-than-expected operating performance. Reported RoA for the quarter increased to 1.13%, and to 0.93% for M9FY23. Core PPOP grew 43% YoY / 14% QoQ. Strong loan and deposit growth, NIM expansion, robust fee income traction and further improvement in asset quality werekey positives. Management clarified that the bank has low exposure to stressed conglomerate (0.6% of loans) and this should assuage asset quality concerns.

The quarter was characterised by: i) Strong growth in loans (6.5% QoQ / 22% YoY) and deposits (5% QoQ / 18%) ii) Sequentially higher NIM (4bps QoQ to 3.4%) iii) Strong fee (22% QoQ / 15% YoY) and treasury performance (+Rs11.4bn vs a loss of Rs4.4bn in 2QFY23) iv) Further improvement in asset quality (GNPA lower by 78bps QoQ to 4.5%. Restructured loans declined to 1.9% from 2.1% in Q2FY23. Slippages declined to Rs28.8bn (1.6% annualised) from Rs44.7bn in 2F2Y23. PCR was stable at ~79%. Credit cost stood at 1.1% annualised (up from 0.8% in Q2FY23).

Analysts at IIFL Capital Services increase their loan growth estimates to 21% for FY23, versus 18% earlier and build in lower compression in margins going forward, leading to the increase in NII. Opex estimates have been reduced by ~3% over FY23-25. Credit cost estimates have been increased by 5-15bps and now stand at ~90/90/100bps for FY23/24/25. 

Analysts at IIFL Capital Services value the stock at 1x Sep-2024 BVPS (Rs210/share) and maintain BUY with target price of Rs 210.