Bank of Baroda (BoB) reported Q2FY17 PAT of R5.5 billion, below our expectation. However, the highlight of the quarter was stability in asset quality metrics. Absolute GNPAs were flat q-o-q at R430 billion, though the ratio moved up to 11.4% due to an ongoing consolidation in advances. Calculated PCR improved 330 bps q-o-q to 55%. Management maintained guidance of R450 billion of GNPA and R150 billion of fresh slippages in FY17 (vs. R78 billion till H1FY17 and R291 billion in FY16). It also expects to achieve domestic NIM of 3% by end of FY17. BoB expects to garner R500 billion of deposits during Q3FY17 given GoI’s demonetisation measures, most of which will accrue in CASA rather than time deposits. BoB will also be a major beneficiary of increased CASA and higher treasury gains from drop in bond yields.
BoB continued consolidating its advances book (down 3% q-o-q and 15% y-o-y), driven by 10% q-o-q drop in SME loans, 18% q-o-q drop in non-home retail loans and 4% q-o-q drop in overseas loans; Corporate loans, home loans and agri grew 2-5% q-o-q; Capital remains healthy with Tier 1 at 10.6% GNPAs remained flat q-o-q, and fresh slippages reduced sharply to `29 billion (vs. 55 billion in Q1FY17).
We have not factored in the impact from the potential flood of deposits in our model yet, but increase our target multiple from 1.1x FY18 to 1.2x to arrive at revised TP of `180 vs `165 earlier.