Bank of Baroda (BANBAR)

CMP: ₹ 234 Target: ₹ 300 (28%) Target Period: 12 months BUY

August 5, 2024

Safeguarding margins over growth; guidance

unchanged..

Result Update
About the stock: Bank of Baroda is the third largest public sector bank with a
global loan book of ~₹ 10.7 lakh crore and strong operating metrics among PSBs
• The bank has a meaningful presence in international operations with its
JVs and subsidiaries. Total ~16% of total business comes from overseas Particulars
Q1FY25 performance: Bank of Baroda Q1FY25 performance were mixed.
Moderation was seen in credit growth (8.1% YoY) led by de-growth in corporate
segment. Deposits grew at 8.9% YoY, with relatively better CASA growth at 6% YoY.
Margin declined 9 bps, both QoQ and YoY to 3.27%, resulting in muted growth in NII
at 5.5%. Other income declined 25% YoY, owing to accounting change in treasury
income and lower recoveries. Thus, operating profit declined 8.5% YoY while PAT
grew 10% YoY to ₹4458 crore, led by lower provision. GNPA declined 4 bps QoQ to
2.88% while slippages remained steady at 1.05%. However, the management Shareholding pattern
maintained guidance to deliver 12-14% growth in advances and RoA at ~1-1.1%. (in %) Sep-23 Dec-23 Mar-24 Jun-24
Promoter 64.0 64.0 64.0 64.0
Investment Rationale FII 12.4 12.3 12.4 11.5
DII 15.7 15.8 16.0 15.8
• Outlook on growth and margins remains steady: In Q1FY25, advances Others 7.9 8.0 7.6 8.8
growth witnessed moderation at 8.1% YoY, with de-growth in Price Chart

ICICI Securities – Retail Equity Research

corporate segment. Conscious strategy to decline dependence on
bulk deposit and safeguard margins led to slower traction in
advances. However, management remains confident of delivering 12-
14% growth in FY25E, with continued strategy to focus on retail portfolio.
Strong franchise and customer base is seen to aid deposit flows thereby
aiding credit growth. Margins came at 3.27%, down 9 bps QoQ, with
outlook remaining steady (guidance at 3.15%) with CD ratio at 80-82%.
(currently at ~82%) and maturity of low yield corporate exposure.
A

A
• Asset quality remains steady: Asset quality remained broadly steady B B

with slippages at 1.05% and decline in GNPA ratio from 2.92% in

Q4FY24 to 2.88% in Q1FY25. MSME and retail witnessed higher slippages, Key risks
however, moderation in unsecured retail credit growth is underway. Going (i) Moderation in retail credit growth
ahead, management guides for slippages at 1-1.25% and credit cost at
<1% (ii) Erosion in margins led by higher
cost of deposit

Research Analyst
Rating and Target Price
• Bank of Baroda has delivered steady performance in terms of healthy Vishal Narnolia
business growth, improvement in margins and asset quality resulting in [email protected]
uptick in earnings.
Gaurav Singh
• Continued in-line industry growth (12-14%) coupled with steady margin [email protected]
(~3.15%) and benign credit cost (<1%) is expected to enable the bank to
Krishna Vyas
deliver RoA at 1-1.1% ahead. We maintain multiple at ~1.1x FY26E BV
[email protected]
thereby keeping our target unchanged at ₹300. Recommend Buy.

Key Financial Summary

3 year CAGR 2 year CAGR
Key Financials (₹ Crore) FY21 FY22 FY23 FY24 FY25E FY26E
(FY21-FY24) (FY24-26E)
NII 28,809 32,621 41,356 44,722 15.8% 47,950 52,647 8.5%
PPP 21,199 22,389 26,864 30,965 13.5% 31,389 33,860 4.6%
PAT 829 7,272 14,110 17,789 177.9% 18,256 19,545 4.8%
ABV (₹) 106.7 140.1 173.2 202.1 230.6 263.5
P/E -12.4 16.7 8.6 6.8 6.7 6.2
P/ABV 2.2 1.7 1.4 1.2 1.0 0.9
RoA -0.8 0.6 1.0 1.2 1.1 1.1
RoE (%) -13.1 8.9 15.3 16.9 15.2 14.2

Source: Company, ICICI Direct Research

 Result Update | Bank of Baroda ICICI Direct Research

Concall highlights and outlook

Highlights
• The bank saw muted advance growth of 8% for the quarter against the
guidance given. The management acknowledged this and cited Q1 to be
sluggish quarter and they prioritized margin preservation over growth.
• Growth was compressed due to higher concentration of low-yielding
assets which matured in Q1FY25
• The management stated moderation in PL growth was another reason for
lower growth this quarter. Guidance going ahead for PL growth to be at a
normalized rate of 30% to 35%.
• There is consistent and conscious effort to lower concentration of bulk
deposits, which was highlighted in the previous 2 quarters. Going ahead,
the bank will focus on retail deposit and further reduction of dependence
on bulk deposits.
• The operating profit took a hit mainly due to lower other income due to 1)
Moderation in fee-based income (slower wealth management activity
owing to implementation of additional control mechanism), 2) lower
recoveries (management kept recovery target unchanged) and 3) change
in accounting of treasury income.
• The bank reported NPAs in line with previous guidance and are pretty
comfortable with the asset quality.
• There was a write-back of depreciation of around ₹ 625 crore, which was
an additional depreciation to the extent of ₹ 76 crore.
• LDR to remain in the range of 80% to 82%, while being watchful of
advances & deposits growth.
• MSME segment has been pretty stable since the past few quarters and
outlook for the same is positive.
• This quarter saw emphasized focus on retail gold loans rather than agri
gold loans since they are higher yielding/ higher margin products.

Guidance
• Credit growth – 12% to 14%
• Deposit growth – 10% to 12%
• NIM – 3.15% (+/- 5 bps)
• Slippages – < 1.2%
• Credit cost – < 0.75%
• RoA – ~1.1%

ICICI Securities | Retail Research 2

 Result Update | Bank of Baroda ICICI Direct Research

Exhibit 1: Variance Analysis

Q1FY25 Q1FY24 YoY (%) Q4FY24 QoQ (%) Comments
NII 11,600 10,997 5.5 11,793 -1.6 NII momentum impacted due to slower business growth

NIM (%) 3.2 3.3 -9 bps 3.3 -9 bps 10 bps decline in margin with positive one-off

Lower recoveries and investment income accounting

Other Income 2,487 3,322 -25.1 4,191 -40.7
impacted other income

Net Total 14,087 14,319 -1.6 15,984 -11.9

Staff cost 4,014 3,754 6.9 4,547 -11.7
Other
Operating 2,912 2,740 6.3 3,331 -12.6
Expenses

PPP 7,161 7,824 -8.5 8,106 -11.7

Provision 1,011 1,947 -48.1 1,302 -22.4 Credit cost steady at 47 bps

PBT 6,151 5,878 4.6 6,804 -9.6

Tax Outgo 1,692 1,807 -6.4 1,918 -11.7

PAT 4,458 4,070 9.5 4,886 -8.8 Slower business growth impacted earning momentum

Key Metrics

GNPA 30,873 34,832 -11.4 31,834 -3.0 Slippages ratio steady at 1.05%

NNPA 7,232 7,482 -3.4 7,213 0.3 NNPA ratio at 0.69%

Advances 10,47,949 9,63,491 8.8 10,65,782 -1.7 Retail segment witnessed growth; corporate de-grew

Deposits 13,06,994 11,99,908 8.9 13,26,958 -1.5 CASA ratio trend relatively better at 40.6%

ICICI Securities | Retail Research 3

 Result Update | Bank of Baroda ICICI Direct Research

Financial Summary

Exhibit 2: Profit and loss statement ₹ crore Exhibit 3: Key ratios

(Year-end March) FY22 FY23 FY24 FY25E FY26E (Year-end March) FY22 FY23 FY24 FY25E FY26E
Interest Earned 69881 89589 112606 121734 132264 Valuation
Interest Expended 37259 48233 67884 73784 79617 No. of Equity Shares 517.8 517.8 517.8 517.8 517.8
BV (₹) 165.9 189.7 216.7 248.3 282.1
Net Interest Income 32621 41356 44722 47950 52647
ABV (₹) 140.1 173.2 202.1 230.6 263.5
growth (%) 13.2 26.8 8.1 7.2 9.8
P/E 16.7 8.6 6.8 6.7 6.2
Non Interest Income 11484 10026 14495 13787 15045
P/BV 1.4 1.2 1.1 0.9 0.8
Net Income 44105 51382 59217 61737 67691
P/ABV 1.7 1.4 1.2 1.0 0.9
Employee cost 11979 13357 15816 17125 19215
Yields & Margins (%)
Other operating Exp. 9738 11161 12436 13222 14616
Operating Income 22389 26864 30965 31389 33860 Net Interest Margins 2.8 3.2 3.2 3.1 3.1
Provisions 13002 7137 6076 7048 7799 Avg. Cost of Deposits 3.3 3.7 4.7 4.7 4.7
Yield on average advances 6.6 7.5 8.5 8.3 8.1
PBT 9386 19727 24890 24342 26061
Quality and Efficiency (%)
Taxes 2114 5617 7101 6085 6515
Cost / Total net income 49.2 47.7 47.7 49.2 50.0
Net Profit 7272 14110 17789 18256 19545
Credit/Deposit ratio 74.3 78.2 80.3 81.0 81.4
growth (%) 777.3 94.0 26.1 2.6 7.1
GNPA 6.6 3.8 2.9 2.6 2.3
EPS 14.0 27.3 34.4 35.3 37.7 NNPA 1.7 0.9 0.7 0.8 0.7
Source: Company, ICICI Direct Research
RoE 8.9 15.3 16.9 15.2 14.2
RoA 0.6 1.0 1.2 1.1 1.1
Source: Company, ICICI Direct Research

Exhibit 4: Balance sheet ₹ crore Exhibit 5: Growth ratios

(Year-end March) FY22 FY23 FY24 FY25E FY26E (Year-end March) FY22 FY23 FY24 FY25E FY26E
Sources of Funds Total assets 10.6 14.1 8.7 10.2 10.8
Capital 1036 1036 1036 1036 1036 Advances 10.0 21.1 13.3 11.9 11.9
Reserves and Surplus 84874 97187 111188 127506 145027 Deposits 8.2 15.1 10.2 10.9 11.5
Networth 85910 98223 112224 128542 146062 Total Income 13.3 22.4 15.2 4.3 9.6
Deposits 1045939 1203688 1326958 1471144 1640124 Net interest income 13.2 26.8 8.1 7.2 9.8
Borrowings 103899 101910 94402 92864 91911 Operating expenses 5.7 12.9 15.2 7.4 11.5
Other Liab & Prov (incl sub-debt) 42252 54740 52213 54824 57565 Operating profit 134.2 20.0 15.3 1.4 7.9
Total 1278000 1458562 1585797 1747374 1935663 Net profit -174.3 94.0 26.1 2.6 7.1
Book value 11.5 14.3 14.3 14.5 13.6
Application of Funds EPS -174.3 94.0 26.1 2.6 7.1
Fixed Assets 9922 8707 7913 8546 9229 Source: Company, ICICI Direct Research

Investments 315795 362485 369817 396763 425866

Advances 777155 940998 1065782 1192242 1334269
Other Assets 52472 50668 47162 60141 72036
Cash with RBI & call money 122655 95703 95124 89683 94264
Total 1278000 1458562 1585797 1747374 1935663
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 4

 Result Update | Bank of Baroda ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according -to their notional target price vs. current market price and then categorizes them as Buy,
Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is
defined as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
Third Floor, Brillanto House,
Road No 13, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

ICICI Securities | Retail Research 5

 Result Update | Bank of Baroda ICICI Direct Research

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ICICI Securities | Retail Research 6

ANALYST CERTIFICATION