Bank of Baroda jumps 9% as Q4 profit beats Street estimates, slippages dip

Shares of state-owned Bank of Baroda jumped 9 per cent to Rs 55 on the BSE on Wednesday on Rs 507 crore net profit in the March quarter of FY20 (Q4FY20), helped by lower provisions. The bank had reported a net loss of Rs 1,407 crore in the Decmeber quarter of FY20. The numbers are not comparable year-on-year due to its merger with Dena Bank and Vijaya Bank effective April 1, 2020. 

The figure beat Street estimates who had expected the bank's profit to come anywhere between Rs 356 crore and (-) Rs 1,659 crore. 

“Asset quality could spring in some volatility given the bank’s exposure to few of the talked about stress groups. Core momentum will be steady (albeit softer). We expect the bank to take an impending DTA impact which will impact the profitability,” Santanu Chakrabarti and Prakhar Agarwal had said in an earnings expectations report.

The gross non-performing asset (GNPA) ratio came in at 9.40 per cent, as against expected 11.38 per cent. Net NPA, on the other hand, was at 3.13 per cent.

"BoB reported a strong performance on impairment ratios with gross and net NPLs declining 100bps QoQ to 9.4% and 3.1% respectively on the back of lower slippages (1.9% of loans). The bank has made additional standard asset provisions ahead of possible risks arising out of Covid in the current quarter. The merger progress is broadly on track and disruption has been lesser than anticipated," said analysts at Kotak Institutional Equities (KIE). They have 'add' rating on the stock with a target price of Rs 65.

The bank's provisions came down to Rs 3,190 crore in the recently concluded quarter from Rs 7,155.4 crore in Q3FY20 and Rs 10,341 crore in Q4FY19.

Analysts at Prabhudas Lilladher expected the provisions to be around Rs 4,413.9 crore in the March quarter.

Fresh slippage for the quarter stood at Rs 3,050 crore.

"In terms of slippages ratio, we do anticipate some stresses due to Covid but our current assessment is that our slippages in FY21 should be lower than in FY20," the bank's managing director and CEO Sanjiv Chadha said.

"We had expected a strong recovery in earnings as the corporate NPL cycle is behind but the post-Covid era brings in fresh challenges making it difficult to assess the near term business performance on impairments and return ratios. We believe that BoB is relatively better placed among the next tier of public banks after SBI. The bank is yet to take a decision on the new tax rate which could potentially impact near term earnings. Importantly, the sharp correction in stock price raises an additional risk of book value dilution if there is a recapitalisation," said analysts at KIE.

As regards loans under moratorium, the management said approximately 65 per cent of the bank's book was under moratorium but has come down to 55 per cent in May.

"We expect the overall moratorium to come down to 35 per cent in the quarter going ahead," it said in a statement.

At 10:12 am, the stock was trading 6.4 per cent higher at Rs 53.7 on the BSE, as against 228 points, or 0.65 per cent, gain in the benchmark S&P BSE Sensex at 35,658.97 level. A combined 66.52 million shares have changed hands on the NSE and BSE till the time of writing of this report.