Reduce Bank of Baroda; target of Rs 54: Dolat Capital

Dolat Capital's research report on Bank of Baroda

BoB reported a loss at PBT level of of Rs17.2bn in 4QFY20 led by higher provisions, though tax reversal resulted in a PAT of Rs5bn. Slippages were lower at 2.6%, partly benefitting from asset quality standstill on overdue accounts. Higher recoveries were driven by one large recovery of Rs25bn. Moratorium by value stood at ~55% in June. Higher moratorium levels are partly attributable to opt-out extended to borrowers. BoB stands out for its conservative recognition and provisioning practices (PCR at 69%). However, with sub-par core earnings (PPoP/assets at 1.8%) and elevated credit costs over the medium term, we expected profitability to remain weak. We lower our RoA estimates to 0.1%/0.4% for FY21E/22E, factoring in the benefit of standard provision buffers (Rs27bn) in FY21E credit costs.

Outlook

We have a REDUCE recommendation on the stock with a TP of Rs54, valuing it at 0.6x of FY22E P/ABV.

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