Q3FY24 Review: Bank of Baroda: PPOP misses, but lower provisions drive PAT beat

2 Feb 2024 , 10:32 AM

BOB’s Q3 PPOP missed by 7%, but sharp decline in provisions drove 11% PAT beat. NIMs were stable aided by increase in LDR, drawdown of excess liquidity and de-growth in bulk deposits. Non-II was weak led by fee income and trading loss. Credit cost was lower than expected at 26 bps due to reversal of standard provisions. Analysts of IIFL Capital Services raise FY24 est. by 10%, fine-tune FY25-26 and increase TP to Rs270 as their roll-forward and increase target P/B to 1.0x. While analysts of IIFL Capital Services medium-term concerns on liability franchise remain, their upgrade rating to ADD from REDUCE due to limited impact from RBI embargo and better near-term NIM outcome. 

Weak deposit growth; NIM stable. 

Loan growth of 2% QoQ/14% YoY was led by retail (5% QoQ), while international book (18% of total) declined 1% QoQ. Deposit growth was weak (flat QoQ), resulting in LDR inching up to 82%. NIM expanded 3 bps QoQ as 8 bps increase in asset yield offset 4 bps rise in cost of deposit. NIMs were aided by increase in LDR, drawdown in excess liquidity and run-down of costlier bulk deposits. Analysts of IIFL Capital Services expect better medium-term NIM outcome relative to peers led by (1) limited residual deposit re-pricing, (2) modest benefit from MCLR loan re-pricing, (3) short duration of TDs, which can re-price lower faster when rate-cycle turns, and (4) increase in ROI for NBFC loans. 

Non-II weaker than expected; asset quality stable. 

Non-II missed due to MTM loss of Rs2.9bn and weak fee income growth. Bank expects fee income to improve with higher focus on its fees and flows strategy. Contained slippages (1%) and reversal of standard provisions due to upgrades from restructured book led to lower than expected credit cost of 0.3%. analysts of IIFL Capital Services expect credit costs to normalise to 75-90 bps over FY25- 26E from current low levels of 65 bps. 

Upgrade to ADD 

Due to limited impact from RBI embargo and better near-term relative NIM outcome. However, weakening liability franchise (as highlighted in analysts of IIFL Capital Services initiation) and continued market share decline keeps us on sidelines. It is trading at 1.0x FY25E P/B for an average RoA/RoE of 1%/14% respectively.