Bank Of Baroda Shares Gain Most In A Year On Higher Profit, Better Asset Quality
Here's what brokerages had to say about BoB's Q3 FY22 performance:
Shares of Bank of Baroda Ltd. gained the most in nearly a year as the lender’s net profit rose and asset quality improved in the third quarter.
The bank reported a profit after tax of Rs 2,197 crore, up 107% year-on-year, in the quarter ended December, according to its exchange filing. That compares with the Bloomberg consensus estimate of Rs 1,640 crore.
Key Q3 Highlights (Consolidated, YoY)
Net interest income up 14.4% at Rs 8,552 crore.
Net interest margin improved 36 basis points to 3.13%.
Gross NPA ratio declined 123 basis points to 7.25%. It fell 90 basis points quarter-on-quarter.
Net NPA ratio stood at 2.25% as of December, a sequential drop of 60 basis points.
The bank’s capital adequacy ratio improved to 15.47% from 12.93% a year ago. Tier-I stood at 13.24% (CET-1 at 11.30%, AT1 at 1.94%) and Tier-II stood at 2.23% as of December. The CET-1 of consolidated entity stands at 11.91%.
Shares of Bank of Baroda gained as much as 9.5%, the most since Feb. 18, 2021, to Rs 116.75 apiece. Of the 35 analysts tracking the lender, 29 recommend a ‘buy’ and three each suggest a ‘hold’ and ‘sell’, according to Bloomberg data. The average of 12-month price targets implies a 1.9% upside.
Here's what brokerages had to say about BoB's Q3 FY22 performance:
Motilal Oswal
Maintains 'buy', with a target price of Rs 150, implying a 41% upside.
Solid core pre-provision operating profit growth at 22% year-on-year; lower provisions underpin net earnings further.
On the asset quality front, fresh slippage declined. This, coupled with healthy recoveries and write-offs, resulted in a significant improvement in asset quality.
The bank reported a commendable earnings performance led by a strong recovery in net interest income and lower provisions even as lower treasury gains impacted other income.
Domestic net interest margins expanded led by improvement in yields, while cost of deposits continues to moderate. Business trends revived with advances growing strongly at 5.5% quarter-on-quarter led by both corporate and retail books.
CASA deposits, too, witnessed a strong traction and healthy CASA mix should shield rise in deposit cost as interest rates harden.
Kotak Institutional Equities
Maintains 'add', raises fair value to Rs 125 from Rs 110 earlier, implying an upside of 18.6%.
The bank reported relatively strong earnings growth led by 8% operating profit growth and a 27% decline in provisions.
Slippages at 2% levels signal a return to normalcy, while the bank made higher provisions which resulted in gross NPA decline.
BoB return ratios will lag SBI's, but directionally, it is in the same trend.
The investment thesis remains largely unchanged as we are currently seeing all public banks, including BoB, emerge from a weak corporate NPL cycle.
The impact of Covid has been manageable.
FY2022 would mark a second consecutive year of declining credit costs and we see this acting as a key investment driver for the medium term as concerns remain regarding the levels at which this would normalize. We are likely to see this falling below the long-term average for a few years given the weak corporate loan growth which implies that the risk of negative surprise is low. As the focus shifts to growth, the operating leverage will help expand return ratios. Dilution risk is low given that the CET-1 ratio is at about 11%.
