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Bank of Baroda Q3 preview: DHFL could dent asset quality, say analysts

Shares of Bank of Baroda were trading nearly two per cent higher on Friday, up 1.8 per cent to Rs 96.55 apiece, ahead of its October – December quarter results for the current financial year (Q3FY20). In comparison, the benchmark S&P BSE Sensex was trading 0.41 per cent higher at 41,570.35 level. A total of 8.13 million shares have changed hands on the NSE and BSE till the time of writing of this report. 

The bank, which is slated to report its Q3FY20 numbers later today, is expected to report a nearly 300 per cent rise in the net profit at Rs 1,851 crore on a year-on-year (YoY) basis. Sequentially, the number could be higher by 151 per cent. Analysts, however, expect the bank to report higher slippages on account of Dewan Housing Finance Corp Ltd (DHFL). 

During the corresponding quarter of the previous fiscal (Q3FY19), the bank had reported a net profit of Rs 471.2 crore. The same stood at Rs 736.7 crore in the September quarter of FY20 (Q2FY20). Besides, profit before tax (PBT) came in at Rs 744.3 crore in Q3FY19 and Rs 1,126.8 crore in Q2FY20. 

The net interest income (NII), meanwhile, was Rs 4,743.2 crore in Q3FY19, and Rs 7,027.9 crore in Q2FY20. 

So far this month, the stock has underperformed the benchmark S&P BSE Sensex by declining 7 per cent, as against a 0.3 per cent rise in the index.   

Here is what leading brokerages expect:

Edelweiss Securities

The analysts at Edelweiss expect the asset quality to “spring in some volatility” given the exposure to few of the stressed groups. In addition, the brokerage firm expects that higher divergence impact (worth Rs 40 billion) on provisioning could keep the credit cost elevated.

“Corporate book of over 30 per cent in BBB and below category, and 2.5 per cent of advances in watch-list will keep slippages and credit cost elevated. Higher downgrades to the BB and below book are a key variable,” they said.

As against expectations by other brokerages, analysts at Edelweiss Securities peg the bank’s net profit at Rs 476.5 crore, up just 1.1 per cent YoY and 35.3 per cent QoQ. Further, they expect the PBT to decline by 14.5 per cent YoY to Rs 636.8 crore. Sequentially, the number would be down by 43.5 per cent.  As for NII, they see a 0.2 per cent sequential rise at Rs 7,038.7 crore.  

Prabhudas Lilladher 

The analysts expect the bank to report a net profit of Rs 1,302.2 crore for the quarter under review, a jump of 176 per cent YoY. Pre-provision operating profit (PPOP), meanwhile, is pegged at Rs 4,750.4 crore, up 34.2 per cent YoY. 

“Bank has not taken DTA impact in earnings and hence no benefit on new tax rate, although earnings will get benefitted from recoveries,” they wrote in an earnings preview note. 

They, however, expect the bank to report muted loan growth sequentially. For the December quarter, the brokerage firm pegs loan growth at 43.5 per cent YoY, but just 1 per cent QoQ, at Rs 6.43 lakh crore. 

Kotak Institutional Securities

“We expect a better headline performance on account of stable operating performance. However, negligible exposure or sale of non-performing loans (NPLs) in earlier quarters implies that the resolution-led impact on BoB would be the lowest among most public banks,” analysts at the brokerage firm said.

They estimate fresh slippages to be over 3 per cent as “the bank has already reported the two stressed NBFCs and plastics group as NPL in the previous quarter”. The bank has a high exposure to NBFCs, which the brokerage firm said, needs to be monitored.

That apart, they expect the NII to be at Rs 7,227.7 crore, up 52.4 per cent YoY and 2.8 per cent sequentially. The loan-loss provisions are pegged at Rs 2,055.2 crore, down 40 per cent on, both, YoY and QoQ basis.

They expect the bank’s net profit to surge 293 per cent YoY and 151 per cent QoQ to Rs 1,851 crore. As for profit before tax, they see the PBT rising 269 per cent YoY to Rs 2,749.3 crore. Sequentially, the number would be up by 144 per cent.

Reliance Securities

According to the brokerage firm, advances for the consolidated book could grow by nearly 2-3 per cent YoY, even as challenges due to integration could continue to impact growth.

They see exposure to DHFL worth Rs 20 billion slipping in this quarter. Other NBFC exposures, however, appear safe as they have already been recognized as NPA in Q2FY20, they said.

“Reversal of provisions from Essar Steel exposure (nearly Rs 17 billion) could partly compensate for the higher provisioning requirements for slippages from NBFC portfolio,” they said.

While they see the net profit rising 122.3 per cent YoY to Rs 969.6 crore, they expect the NII to grow by 9.4 per cent YoY to Rs 7,180.7 crore. The net interest margin is pegged at 2.8 per cent for Q3FY20. 


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