Reduce Bank of Baroda; target of Rs 70: Dolat Capital Market

Dolat Capital Market's research report on Bank of Baroda

BoB reported NII and PPoP growth of 9% and 13% YoY respectively. PPoP benefitted from higher treasury gains and healthy recoveries from written-off pool. NIM was stable sequentially at 2.9%, with interest reversals for pro forma NPAs taken through provisions. Pro forma gross NPAs were at 9.63% against 9.33% in Q2FY21, with pro forma PCR at 66%. Pro forma slippages were higher than industry at 7% for 3QFY21 and 3.5% of 9MFY21 against 5% in FY20. 86% of slippages during the quarter came from the bank’s corporate book. Total COVID restructuring pool was at 95bn or 1.4% of loans, 80% of which came from the corporate segment. Including MSMEs loans restructured under the earlier relief program, restructuring would be at 2% of advances. Provision buffers remain low at Rs17bn or 0.2% of loans.

Outlook

Sub-par core earnings (PPoP/assets at 1.9-2%), dilution risks from weak capital position (CET 1 at 9%), and limited confidence on asset quality remain key concerns for us. Factoring in higher earnings for FY21E led by some moderation in credit costs, we maintain REDUCE call with a TP of Rs70, valuing the bank at 0.6x of Sep-22E P/ABV.