Bank of Baroda rating – Reduce: Performance in Q4 was better than expected

Individually, the stress within the guide is principally within the decrease ticket retail and MSME phase, which makes us a bit cautious. We, due to this fact, preserve Scale back with our TP revised as much as Rs 75.

BOB reported a loss owing to deferred tax adjustment because it moved to a decrease tax charge regime. Core PPOP (excluding treasury positive aspects), nevertheless, grew at 26% y-o-y, 8% above our estimate. This was pushed by 4.5% y-o-y progress in NII, 71% y-o-y progress in non-interest earnings, offset by 26% y-o-y progress in bills. NII was impacted by curiosity write-off on account of slippages in addition to compound curiosity for loans>Rs 20 mn.

Gross slippages have been at ~Rs 123 bn (7.1% slippage ratio on 12m prior loans) which incorporates proforma slippages of Rs 86 bn, leading to web This fall slippages of ~Rs 4 bn. BOB’s slippages in retail and MSME and excellent NPL ratios, in addition to general SMA portfolio, is far weaker as in comparison with SBI. Individually, the stress within the guide is principally within the decrease ticket retail and MSME phase, which makes us a bit cautious. We, due to this fact, preserve Scale back with our TP revised as much as Rs 75.

Asset high quality held up higher, stress largely in small ticket retail & MSME: Gross and web NPL declined to eight.87% and three.09% in comparison with proforma gross and web NPL of 9.63% and three.36%, respectively, in Q3. Gross slippages have been at ~Rs 123 bn. SMA1 and SMA 2 for ticket measurement above Rs 50 mn stood at 3.87%. Assortment effectivity for Mar’21 stood at 93% vs 92% in Q3FY21. The larger fear for BOB is the stress build-up within the smaller ticket loans the place the SMA1 and SMA2 totalled to eight.1% vs 4.4% for ticket measurement > Rs 50 mn, as of Dec’20.

Asset high quality weaker in comparison with SBI: Excellent NPL ratio for BOB is considerably greater than SBI e.g. in company 10.3% vs. 5.6%, in MSME 13.5% vs 7.7% and in retail 2.3% vs. 0.8%. Equally, new NPL formation for BOB is kind of elevated vs. SBI throughout all segments barring agriculture. Likewise, the SMA 1 and SMA2 for above-Rs 50-mn loans, is considerably greater at 3.9% for BOB vs. 0.45% for SBI.

PPOP progress held up, steadiness sheet progress weak: Core PPOP was up 26% y-o-y pushed by one-off NCLT restoration. International NIM declined by 5bp q-o-q at 2.72%. Home CASA ratio improved to 42.9%. Loans grew 2.3% y-o-y.

Change in estimates, valuation truthful: We count on FY23F RoE at 14.5%. The inventory trades at 0.62x P/B on FY21. Our TP of Rs 75 implies P/B (FY22F) of 0.5x and P/E (FY23F) of three.5x.