Shares of Bank of Baroda rose nearly 7 percent after its net profit doubled from a year ago in December quarter due to lower provisions and improved asset quality.
The stock touched a high of Rs 114 on the BSE and gained as much as 6.94 percent. At 9.50am, the stock was trading at Rs 113, up 6.5 percent from the previous close.
The net profit for the quarter stood at Rs 2,197.03 crore as against Rs 1,061.11 crore a year ago. Net interest income (NII) - the difference between interest earned and interest expended - increased 14.38 percent year-on-year (YoY) to Rs 8,552.03 crore.
Provisions and contingencies fell 27.33 percent from a year ago to Rs 2,507.04 crore.
"BOB reported a commendable earnings performance led by a strong recovery in NII and lower provisions even as lower treasury gains impacted other income. Domestic NIMs expanded 31bp QoQ to 3.2 percent led by improvement in yields, while the cost of deposits continues to moderate. Business trends revived with advances growing strongly at 5.5 percent QoQ, led by both corporate and retail books. CASA deposits too witnessed a strong traction and healthy CASA mix should shield rise in deposit cost as interest rates harden," a Motilal Oswal Securities report said.
"BOB’s asset quality improved sharply as fresh slippage declined , which coupled with healthy recoveries and write-offs resulted in sharp 86bp/58bp QoQ improvement in GNPA/NNPA ratio, respectively," the report said. " We increase our FY22-24 earnings by 11-13 percent and estimate FY24 RoA/ RoE of 1 percent/14 percent even as we conservatively build credit cost of 1.3 percent (v/s 1.6 percent in FY22."
The brokerage firm has maintained 'buy' rating on the stock and increased its target price by 41 percent to Rs 150 a share.
Gross NPAs ratio – bad loans as a percentage of gross advances - were at 7.25 percent in Q3 FY22, down 86 bps sequentially and 123 bps YoY. Post-provisions, the net NPA ratio was at 2.25 percent in Q3, against 2.83 percent in the September quarter of FY22 and 2.39 percent in the year-ago quarter.The bank's fresh slippages in the third quarter stood at Rs 2,830 crore as compared to Rs 5,223 crore during Q2 and Rs 3986 crore in Q3FY21.
Its recoveries and upgrades from NPAs during the quarter were Rs 2,032 crore and Rs 1,272 crore as against Rs 1,966 crore and Rs 2,106 crore, sequentially.
Write-offs for the quarter were at Rs 3,694 crore versus Rs 5,213 crore in the second quarter and Rs 4,708 crore a year ago.
"We maintain ADD with an FV of Rs125 (from Rs110 earlier), valuing the stock at 0.7X book and 6X FY2024E EPS for RoEs in the range of 15 percent by FY2024. The investment thesis remains largely unchanged as we are currently seeing all public banks, including BoB, emerge from a weak corporate NPL cycle. The impact of Covid has been manageable. FY2022 would mark a second consecutive year of declining credit costs and we see this acting as a key investment driver for the medium as concerns remain regarding the levels at which this would normalise," Kotak Institutional Equities report said.
"In our view, we are likely to see this falling below the long-term average for a few years given the weak corporate loan growth which implies that the risk of negative surprise is low. As the focus shifts to growth, the operating leverage will help expand return ratios. Dilution risk is low given that the CET-1 ratio is at 11 percent," the Kotak report added.
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