Result Analysis – Bank Of Baroda

Result Highlight:

• BOB Consolidated Interest Income fall by 6.33% YoY to ₹ 16692 crore – in line with the estimates. Other Income rose 10.86% Y-o-Y to ₹541

• The net interest income (NII) for the quarter stood at ₹ 7566 crore compared to ₹ 7,410 crore in the previous year, representing a growth of 2.11%.

• During the quarter company reported Global NIM at 2.85% and Domestic NIM came in at 2.90%.

• Net profit rose 24.36% YoY to ₹2088 crore for the September quarter compared with ₹ 1679 crore in the same quarter last

• Operating Profit of the Bank increased to INR 5,669 crore in Q2FY22, up by 5.76% on a YoY basis.

• The Gross NPA of the Bank reduced to ₹59,504 crore in Q2FY22 from the level of ₹65,698 crore in Q2FY21. Subsequently the Gross NPA Ratio improved to 8.11 % in Q2FY22 from 9.14% in Q2FY21.

• The Net NPA Ratio of the Bank stood at 2.83% in Q2FY22 as compared with 2.51 % in Q2FY21.

• The Provision Coverage Ratio of the Bank stood at 83.42%.

• CRAR of the Bank improved to 15.55% in Sep’21 from 13.26% in Sep’20.

• Return on Assets improved to 0.73% in Sep21 from 0.59% in Sep20.

• Organic Retail loan portfolio of the Bank grew by 10.25% on a YoY basis, led by growth in Personal loan, 23.17% growth in Auto loan and 11.09% in Education loan.

• Cost to Income Ratio stood at 8.2% vs 8.5%.

Management commentary:

• Sharp decline in yields this quarter was due to NBFC slippage- as interest reversal, Adjusted for the one-offs, domestic NIM for the quarter will be upwards of 3%.

• Management said Bank saw good growth in retail segment while home loan segment saw muted growth.

• Recoveries during the quarter increased to ₹3246 crore including ₹1246 crore from written off account, which is higher than the recoveries of same quarter last year.

• Management expect loan growth to be close to double digit led by growth in retail loan.

• Of the ₹18000 Corporate GNPA, NCLT process going on in many. Hopeful of good recovery from NCLT and OTS. Expect Rs1000-1500 of incremental recovery in FY22. From the international book NPA, 20-30% of upgrades expected in FY23.

• The bank has provided ₹600 against 3 specific standard accounts which are likely to slip, provision levels differ across exposures bank has provided 100% for 1 account, and two are power companies.

• Bank has ₹ 2000 crore of exposure in SREI infra against which 50% has already been provided.

• Bank has guided that Credit costs will continue to trend downwards, expect it to be at 1.5-2%. Expect a better second half vs first half on slippages Maintain slippage guidance of 2%. Rs7000-8000 of recovery/upgrades expected in second half of FY22

Outlook:

Bank of Baroda reported good profit which was supported by lower provision where loan growth was tepid of only 2% which was mainly led by SME and retail loan, company reported flattish NII growth mainly led by elevated interest reversals from a NBFC slippage. Higher growth in other income at 28% YoY was led by good treasury gains and healthy recoveries. PAT benefitted from lower provisions, and as write back from DHFL recovery, bank ROA is constantly improving and this time it came at 0.73%, both gross as well as net NPA also improved in this quarter, as economy is picking up loan growth is expected to improve going forward, bank has also guided for improvement in credit cost, and as NCLT process will speed up more recoveries are expected going forward.

Bank of Baroda trade at a very low multiple compared to private bank it has a very strong liability franchise and a good balance sheet size which will get benefit from economic recovery and good credit growth, BOB is trading at P/E multiple of 7x and P/B at 0.6x Valuing the company at 8x FY23E EPS, we recommend buy on BOB at CMP of for the Target Price of ₹ 132.

Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014

Elite Wealth Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only information in making their investment decision and must exercise their own judgment before making any investment decision.
For analyst certification and other important disclosures, see the Disclosure Appendix, or go to www.elitewealth.in. Analysts employed by Elite Wealth Limited are registered/qualified as research analysts with SEBI in India.( SEBI Registration No.: INH100002300)
Disclosure Appendix
Analyst Certification (For Reports)
Israil Khan, Elite Wealth Limited, suhail@elitewealth.in
The analyst(s) certify that all of the views expressed in this report accurately reflect my/our personal views about the subject company or companies and its or their securities. I/We also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Elite Wealth Limited.
As to each individual report referenced herein, the primary research analyst(s) named within the report individually certify, with respect to each security or issuer that the analyst covered in the report, that:
(1) all of the views expressed in the report accurately reflect his or her personal views about any and all of the subject securities or issuers; and
(2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in the report.
For individual analyst certifications, please refer to the disclosure section at the end of the attached individual notes.
Research Excerpts
This note may include excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please visit www.elitewealth.in.
Company-Specific Disclosures
Important disclosures, including price charts, are available and all Elite Wealth Limited covered companies by visiting https://www.elitewealth.in, or emailing research@elitestock.com with your request. Elite Wealth Limited may screen companies based on Strategy, Technical, and Quantitative Research. For important disclosures for these companies, please e-mail research@elitestock.com.
Options related research:
If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the risk disclosure documents, please contact your Broker’s Representative or visit the OCC’s website at https://www.elitewealth.in
Other Disclosures
All research reports made available to clients are simultaneously available on our client websites. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your respective broker’s sales person.
Ownership and material conflicts of interest Disclosure
Elite Wealth Limited policy prohibits its analysts, professionals reporting to analysts from owning securities of any company in the analyst’s area of coverage. Analyst compensation: Analysts are salary based permanent employees of Elite Wealth Limited. Analyst as officer or director: Elite Wealth Limited policy prohibits its analysts, persons reporting to analysts from serving as an officer, director, board member or employee of any company in the analyst’s area of coverage.
Country Specific Disclosures
India – For private circulation only, not for sale.
Legal Entities Disclosures
Mr. Ravinder Parkash Seth is the Managing Director of Elite Wealth Ltd (EWL, henceforth), having its registered office at Casa Picasso, Golf Course Extension, Near Rajesh Pilot Chowk, Radha Swami, Sector-61, Gurgaon-122001 Haryana, is a SEBI registered Research Analyst and is regulated by Securities and Exchange Board of India. Telephone:011-43035555, Facsimile: 011-22795783 and Website: www.elitewealth.in
EWL discloses all material information about itself including its business activity, disciplinary history, the terms and conditions on which it offers research report, details of associates and such other information as is necessary to take an investment decision, including the following:
1. Reports
a) EWL or his associate or his relative has no financial interest in the subject company and the nature of such financial interest;
(b) EWL or its associates or relatives, have no actual/beneficial ownership of one per cent. or more in the securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance;
(c) EWL or its associate or his relative, has no other material conflict of interest at the time of publication of the research report or at the time of public appearance;
2. Compensation
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) EWL or its associates have not managed or co-managed public offering of securities for the subject company in the past twelve months;
(c) EWL or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(d) EWL or its associates have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(e) EWL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
3 In respect of Public Appearances
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) The subject company is not now or never a client during twelve months preceding the date of distribution of the research report and the types of services provided by EWL