Bank of Baroda
shares tumbled 5.6 per cent to Rs 79 apiece on the BSE in Monday's intra-day deals, but closed 3.7 per cent lower at Rs 81 per share, as the public sector lender's provisions and contingency funds soared 44 per cent to Rs 4,593 crore in March quarter of FY21 (Q4FY21) as against Rs 3,191 crore in the year-ago period. The bank made provisions to the tune of Rs 2,080 crore in the December quarter (Q3FY21).
Yet analysts remain bullish on the state-owned lender from a long-term perspective as they believe it is on a firm footing to manage the asset quality woes amid the second wave of Covid-19.
Global brokerages Morgan Stanley, JPMorgan, and CLSA remain optimistic on the stock and have target prices of Rs 100 (Equalweight), Rs 110 (Overweight), and Rs 130 (Buy) respectively, translating into an upside of up to 55 per cent, on improved asset qaulity trends and contained slippages (3 per cent during the quarter).
"BoB's asset quality surprised positively with Rs 3,700 crore of slippage compared with our estimate of Rs 8,000 crore-Rs 9,000 crore. Unlike peers, its domestic corporate and overseas book slippage remained high in FY21 (2 per cent of loans) but retail slippage of just Rs 1,250 crore in FY21 (1.2 per cent of retail loans) surprised positively," CLSA highlighted in its post-result report.
It added that while risk from the second wave of Covid-19 remains for its retail book and a true picture of SME stress will be reflected in 2HFY21, the corporate cycle is clearly turning, and hence BoB will also benefit from this trend.
The lender's gross non-performing loans (NPLs) declined 75 bps quarter-on-quarter (QoQ) to 8.9 per cent while net NPLs declined 25 bps to 3.1 per cent and restructured loans stayed below 1.5 per cent of loans. Furthermore, provision coverage is at 67 per cent (82 per cent including technical write-off) and the bank has reported slippage of 3 per cent for FY2021 with a large share of it coming from the international loan book. Overall speical mention account (SMA) book stands comfortable at 4 per cent of loans for loans over Rs 5 crore.
This, according to Kotak Institutional Equities (KIE), is a good outcome as the corporate book (including international loans) is 60 per cent of the overall loan book, which is less impacted by Covid currently. The bank has a relatively lower share of retail loans (16 per cent of loans) and MSME (13 per cent of loans).
"The retail portfolio is holding up well suggesting that the slippages on account of Covid could be manageable. There could be some upside in the corporate NPL book, which would ensure that the headline NPL ratios have more headroom for decline despite the second wave of Covid," it added.
Overall, Bank of Baroda
reported a standalone net loss of Rs 1,046 crore for the quarter under review on the back of a shift to new tax structure and on account of DTA reversal.
"Excluding the impact of the change in tax regime, the bank would have reported profit after tax of Rs 2,267 crore in Q4FY21," it said in a filing. It had posted a profit of Rs 506.6 crore in the same period last year (Q4FY20). On a consolidated basis, the net loss of the lender stood at Rs 740 crore for the quarter under review.
Operationally, its profit was Rs 6,266 crore, registering an increase of 27.3 per cent year-on-year. Meanwhile, non-interest income for Q4FY21 was up by 71 per cent year-on-year to Rs 4,848 crore.
According to analysts at KIE, BoB's reported earnings were mixed due to a lot of one-offs in the quarter. For instance, while the bank reported a profit before tax of Rs 2,700 crore, a one-off DTA charge of Rs 3,300 crore resulted in a loss for the quarter.
"Moreover, on the income side, the bank reversed net interest income (NII) on account of slippages as well as compound interest on loan exposure of over Rs 2 crore. Further, the bank had a large recovery from a written-off NPL resulting in a sharp increase in non-interest income. The bank has also made a higher provision for wage settlement this quarter. Besides, business performance was muted with deposit and loan growth at 2 per cent year-on-year, respectively. Net interest margin (NIM) declined sequentially on account of income de-recognition," it noted.
However, given that the overall slippages are likely to be manageable, the brokerage maintains its 'Add' call on the stock with fair value of Rs 95 (from Rs 80), valuing the stock at 0.6X book and 5X FY2023E EPS for RoEs in the range of ~12-14 per cent.
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