Bank of Baroda’s Q1FY16 PAT earnings came in R1,050 crore (-23% y-o-y), 69% above our estimate and 17% above consensus.
Bank of Baroda’s Q1FY16 PAT earnings came in R1,050 crore (-23% y-o-y), 69% above our estimate and 17% above consensus. This was mainly due to higher than expected NII and lower credit cost, though our concern on asset quality remains as both slippages and stressed assets remained high.
In terms of asset quality, SME segment remains the main problem area with GNPLs rising to 8.5% in Q1 from 5.4%, a year ago. Agri NPLs ratio also remained elevated at 5.7%. Likewise large and mid-corporate segment NPL ratio has deteriorated to 7.7%. Overall gross NPLs climbed further to 4.1% from 3.7% q-o-q and 3.1% y-o-y with slippages rising to 1.5% (though much below peers’ levels). While additional restructuring of R150 crore seems negligible, if we consider the cR4,000-4,500 crore of loans refinanced under the 5-25 rule, stressed assets have risen to 9.1% vs 7.8%q-o-q.
The outlook remains cautious as we believe asset quality stress is yet to peak given its exposure to stressed segments of SME and agri. However, a gradual macro recovery over FY16-18e should help in RoA improving from 0.5% in FY15e to 0.7% by FY18e.
We continue to value the stock at 0.8x P/AB (12-months rolled forward base), resulting in a revised TP of R132 from R127 earlier, implying downside of 21.5%. Maintain reduce.