EUR 120.00 For Business Accounts Only

MOSL . BANK OF BARODA: Healthy business growth; lower provisions drive earnings

• BOB reported a healthy 1QFY23 as core PPOP grew 11% YoY, while lower provisions drove net earnings (a significant beat). Business growth was healthy, with loans growing 3% QoQ. However, margin moderated by 6bp QoQ.
• Asset quality improved as fresh slippages moderated to INR32.7b, resulting in a significant decline in credit cost, with PCR increasing further to ~76%. Total SMA 1/2 (over INR50m) stands controlled at 48bp of loans. Collection efficiency (excluding Agri) improved to 98% in Jun’22.
• We raise our FY23/24 earnings estimate by 22%/11% to factor in higher NII and lower credit cost. We estimate a FY24 RoA/RoE of 1%/13.7% as we build in a credit cost of 1.1%. We maintain our Buy rating.

Margin declines by 6bp QoQ; PCR improves to ~76%

• BOB reported a PAT of INR21.7b (MOSLe: INR12.8b), driven by lower provisions, which declined by 58% YoY to INR16.8b. NII grew 12% YoY and 2.6% QoQ (inline), even as margin contracted by 6bp QoQ to 3.02%.
• Other income declined by 59% YoY to INR11.8b, impacted by a treasury loss of INR5.9b. Core fee income, however, grew 16% YoY. PPOP fell 19% YoY to INR45.3b (10% miss), while core PPOP grew 11%.
• The bank availed the option to defer the increased family pension cost over a five-year period and provided INR727m in 1QFY23, while the balance of INR10.9b is to be amortized subsequently.
• Advances registered a healthy growth of 2.9% QoQ and 20% YoY. Among segments, Retail loans grew 5.1% QoQ and 23.2% YoY, while the Corporate book was flat QoQ (up 17% YoY). The SME/Agri book grew 11%/14% QoQ. Deposits grew 11% YoY (down 1% QoQ). The domestic CASA ratio stood stable at 44.2%.
• On the asset quality front, fresh slippage moderated to INR32.7b (~2% annualized), which, coupled with healthy recoveries and write-offs, resulted in a 35bp/14bp QoQ improvement in GNPA/NNPA ratio to 6.3%/1.6%. PCR improved to ~76%. Total SMA 1/2 (over INR50m) book stands modest at 0.48%, while CE (excluding Agri) stood at 98% in Jun’22.

Valuation and view

• BOB reported a broadly steady operating performance, while lower provisions drove net earnings. Business growth stood healthy at 3% QoQ, led by Retail loans, while margin declined slightly. CASA mix was largely stable, which should shield the rise in deposit cost as interest rates harden. Asset quality improved as slippages moderated, with CE strong at 98%. We increase our FY23/FY24 earnings estimate by 22%/11%, factoring in higher NII and lower credit cost. We estimate a FY24 RoA/RoE of 1%/13.7% and value the stock at INR150 (0.8x FY24E ABV). We maintain our Buy rating.