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Dolat Capital Report
Bank of Baroda reported healthy quarter with strong operating profits (+73% YoY) led by higher treasury income and lower opex.
Profit after tax further benefitted from lower credit costs despite higher tax rates. Net interest margin at 3.3% (-26 basis points QoQ) was impacted by limited re-pricing of marginal cost of fund based lending rate linked loans and seasonally lower recoveries in Q1. Loan growth at 2% QoQ was in-line.
BoB's asset quality continued to strengthen with 28 bps QoQ decline in gross non-performing asset to 3.5%, low slippages at 1.2%, sharp decline restructured book to 1.3% (-50 bps QoQ), and rise in provision coverage ratio to 79%. We factor in slightly lower slippages versus earlier.
With earnings upgrade of 5-8% over FY24/25E mainly driven by lower credit costs, maintain 'Buy' with revised target price of Rs 235 (Rs 230 earlier), valuing the bank at 1.1 times FY25E price/adjusted book value against return on asset/return on equity of 1%/15% for FY24E.
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