Bank of Baroda extends rally; hits over two-year high on strong Q3 results

Shares of Bank of Baroda (BOB) hit an over two-year high of Rs 117.50, and gained 4 per cent on the BSE in Tuesday’s intra-day trade in an otherwise weak market. The stock was trading at its highest level since July 23, 2019.

In the past two trading days, the stock has rallied 10 per cent after the state-owned lender reported a strong earnings for the quarter ended December 2021 (Q3FY22). At 01:15 pm, BOB was trading 2 per cent higher at Rs 115.20, as compared to 0.36 per cent decline in the S&P BSE Sensex.

In Q3FY22, the lender's standalone profit after tax doubled to Rs 2,197 crore aided by higher net interest income and lower provisions. The lender had posted a net profit of Rs 1,061 crore in the same quarter a year ago.

Net interest Income (NII)- the difference between interest earned and interest expanded, jumped 14.38 per cent to Rs 8,552 crore in the reporting quarter, aided by margins. Net interest margin, a measure of profitability, of the bank stood at 3.13 per cent, up 36 basis points from the year-ago period.

Asset quality of the bank improved both sequentially and on a YoY basis, with gross NPAs at 7.25 per cent. Similarly, net NPAs improved to 2.25 per cent in Q3FY22. Slippages of the bank came in at Rs 2,830 crore as compared to Rs 5,223 crore during Q2FY22 and Rs 3,986 crore in Q3FY21.

BOB expects credit growth to be around 7-10 per cent in FY22 and NIMs to remain healthy due to better growth/lower interest reversals on NPAs. The bank has been guiding that the slippages should be in the range of 2 per cent.

"BOB has ramped up the provision cover to 71 per cent, which otherwise was relatively low vs. peers, and thus should limit incremental provisions on stock of NPAs. BOB has reversed Rs 1,300 crore of provisions on Air India in Q3 and a similar reversal will be seen in Q4, which will support profitability", analysts at Emkay Global Financial Services said in a result update. The brokerage firm retained buy/overweight rating on the stock with a target price of Rs 145 per share.

Brokerage ICICI Securities believes that improving business outlook along with containment of slippages should help the overall performance to improve.

“Focus on retail to propel credit growth; corporate segment to support, moderation in slippages and gradual resolution of NPA to aid asset quality. Improvement in NIM & CI to aid operation; yield hardening to impact PAT, comfortable capital position with CRAR at 15.97 per cent, to aid business growth-- these are among key triggers for future price performance", the brokerage said.

Motilal Oswal Financial Services maintained ‘buy’ rating on BOB with a target price of Rs 150 per share. “BOB reported a commendable earnings performance led by a strong recovery in NII and lower provisions even as lower treasury gains impacted other income. Domestic NIMs expanded 31bp QoQ to 3.2 per cent led by improvement in yields while cost of deposits continues to moderate, the brokerage said.