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You are here : IndiaNotes >> Research & Analysis >> Companies >> Bank of Baroda >> Research

Bank of Baroda Q1FY18: Stress additions remain elevated; provisions mar earnings

Motilal Oswal | 15 Aug, 2017  | Follow Author | Add to my Favourites 
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- Bank of Baroda (BoB) reported PAT of INR2.0b v/s loss of INR989m in 4Q. Elevated NPL provisions (2.3% credit costs annualized) on account of continued stress additions weighed down on PPoP (-4%/-1% QoQ/YoY; inline), leading to a sharp PAT miss.

- NII growth was muted at 2%/1% QoQ/YoY
on the back of sluggish loan growth (-1%/4% QoQ/YoY) and a 5bp contraction in NIM to 2.12%. However, NIM was impacted by ~11bp from interest reversals of INR1.7b, while 4Q NIM had an INR1.5b IT refund component.

- Slippages were elevated at INR52.0b
(annualized slippage ratio of 5.7% v/s 4.3% in 4Q) v/s INR40.8b in 4Q, with INR8.9b of slippages from the restructured book. While recoveries and upgrades were subdued at INR16.1b, write-offs at INR350m were very low, leading to an 8% QoQ increase in absolute GNPA. Overall NSL stood at ~10.0%.

- Other highlights:
a) Retail advances grew 5% QoQ and 19% YoY. b) Average daily CASA ratio declined marginally to 37.7% v/s 38.8% in 4Q. c) CET 1 ratio stood at 8.83% v/s 8.98% in the previous quarter.

Valuation and view:
We like management’s focus on cleaning up the balance sheet and laying the foundation for sustainable growth. We expect stress addition and credit costs to moderate from FY19, and cut FY18/FY19E earnings by 48%/8% to account for lower margins and high credit costs. Near-term earnings volatility is likely to continue due to asset quality-related stress. Further, very low levels of RoAs are driving high upgrades/downgrades. Additional buffers like non-core financial investments among other options will lead to dilution-free growth in the near term. Maintain Buy with a TP of INR198 (1.1x June 19 BV) v/s earlier TP of INR217 based on 1.2x FY19E BV – based on RI model.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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