Sell Bank of Baroda; target of Rs 175: Systematix

Systematix's research report on Bank of Baroda

While credit contracted 8.9% yoy, deposits were flat yoy, resulting in business contracting 3.5% yoy. CASA grew 38.7% yoy, with its share in deposits up 927bps yoy to 33.3%. NIM rose 24bps yoy (down 17bps qoq) to 1.9%, despite a contraction in business. Productivity improved yoy, with core cost-income falling 305bps yoy (up 513bps qoq) to 56.9% and cost-assets up 9bps yoy (flat qoq) to 1.35%.

Bank of Baroda’s (BOB) robust core pre-provisioning profit growth of 24.1% yoy was driven by better core earnings and stable productivity. Key highlights are: 1) healthy NII (15.9% yoy, despite credit contraction of 8.9% yoy, modest NIM (1.9%) and sturdy fee income (16% yoy); 2) retail advances (-0.8% yoy, 14.7% of advances) grew better than overall advances; 3) asset quality deteriorated, leading to high credit costs (annualised) at 178bps and 4) healthy traction in savings deposits (41.6% yoy) led by demonetisation, with CASA (low-cost deposits) share in total deposits rising 927bps yoy (565bps qoq) to 33.3%. We cut FY17e PAT estimates by 16% to factor higher slippages and NPA provisions, and revise the rating from a Hold to Sell.