Hold Bank of Baroda; target of Rs 58: Emkay Global Financial

Emkay Global Financial's report on Bank of Baroda

BOB reported strong numbers in Q4 with a net profit of Rs5.1bn, mainly aided by higher other income, lower staff cost and contained NPA provisions, despite NIM compression due to lower yield on loans/investments. GNPA ratio improved 103 bps qoq to 9.4%, due to higher upgrades and standstill benefit on overdue loans (Rs40bn). BOB has a high moratorium rate of 65% among PSBs due to the opt-out option, but it is likely to fall as it has revised modalities in the second round. Management expects long due integration to be completed in FY21. However, we believe that managing Covid-19-induced asset quality pain will be challenging and thus, factoring in higher NPAs/LLP, we cut FY21/FY22 estimates by 141/48%.

Outlook

We retain Hold/UW in EAP, with a revised TP of Rs58, based on 0.5x FY22E ABV (vs. Rs62, based on 0.6x FY22E ABV earlier), given its reasonable valuations, healthy capital position and higher retail orientation, which should be structurally positive in the long run.

Bank of Baroda 25062020-emkay

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