Reduce Bank of Baroda; target of Rs 52: Dolat Capital

Dolat Capital's research report on Bank of Baroda

BoB’s reported a loss of Rs86 bn in Q1FY21 led by higher provisions. Though domestic slippages were muted owing to ongoing loan moratorium, two-third of slippages in 1QFY21 pertained to the international portfolio. Slippages from overseas book have been elevated over the last few quarters. The quarter also saw high additions to watch-list from the NBFC and power sector. The NBFC addition pertained to a single well rated infra financing NBFC account, where the bank has so far made 35% provisions as per RBI’s June 7 circular against a total exposure of Rs76bn, 75% of which is govt guaranteed. Moratorium book stood at 21% of advances by value, based on TLs that have not paid July instalment. Standard asset provision buffers were at 0.6% of loans for the bank, higher than public sector peers, partly due to the NBFC watch-list provisioning highlighted earlier. While BoB stands out for its conservative recognition and provisioning practices (PCR at 72%), risks to profitability from sub-par core earnings (PPoP/assets at 1.8%) and elevated credit costs are high.

Outlook

Tweaking our estimates marginally, we maintain our REDUCE recommendation on the stock with a TP of Rs52, valuing it at 0.6x of FY22E P/ABV.