Hold Bank of Baroda; target of Rs 175: SPA Securities

SPA Securities' research report on Bank of Baroda

BOB reported improved operational performance with higher NII growth (9% y-o-y & q-o-q) and controlled opex (5% y-o-y & q-o-q) leading to PPOP growth of 13% y-o-y & 15% q-o-q. Loan book growth was 9% y-o-y & 3% q-o-q to INR 3.9tn on a lower base. Highlight for the quarter was lower slippages of INR 25.9bn vs. 37.6bn (average fresh slippages for last 5 quarters). Credit cost continued to be higher (30% y-o-y & -1.6% q-o-q) due to ageing provisions which resulted in a PAT of INR 3.6bn (-36% y-o-y & 75% q-o-q). We recommend a HOLD on the stock with a TP of INR 175 in 16 months, implying a P/BV multiple of 0.9x on FY19E BV of INR 195.

Outlook

Legacy issues continue to haunt BOB resulting in volatile earnings. However, it is one of the strongest liability franchise post SBI within the PSB space with a strong CASA of ~40%. The bank's focus on cleaning up the balance-sheet and keeping a strong PCR at ~67% (one of the highest among peers) lends us comfort. We expect stress addition and credit costs to moderate in FY19E, although ratios will look elevated due to moderate balance sheet growth. We expect ROA / ROE to be ~0.5% / 8.3% for FY19E respectively. We recommend a HOLD on the stock with a TP of INR 175 in 16 months, implying a multiple of 0.9x P/BV on FY19E BV of INR 195.