Bank of Baroda Q4 preview: Covid-19, telecom stress may keep earnings muted

Kajal Gandhi and Vishal Narnolia, research analysts at ICICI Securities, believe that Covid-19 breakout and merger process would lead to sluggish business growth during the quarter under review.

Hit by business disruption amid Covid-19 outbreak and merger with Dena and Vijaya Bank, state-owned Bank of Baroda is likely to post muted March quarterly earnings on Tuesday, June 23. While analysts remain divided on the bank’s net profit, which ranges from Rs 356 crore to (-) Rs 1,659 crore; asset quality figures due to exposure to the telecom sector would be under their radar.

The bank had incurred a net loss of Rs 991.4 crore in the year-ago quarter, which widened to Rs 1,407 crore in Q3FY20. Net interest income (NII) was Rs 5,067 crore in Q4FY19, and Rs 7,129.1 crore in Q3FY20. The gross non-performing assets (GNPA) and net NPA ratio were 10.4 per cent and 4.1 per cent, respectively in Q3FY20.

Do note that the numbers remain comparable on a sequential basis as the three-way merger with Dena Bank and Vijaya Bank came into effect from Q1FY20.

During the quarter under review, the bank has underperformed the key S&P BSE Sensex and S&P BSE Bankex indices, ACE Equity data show. Between Dec 31, 2019 and March 31, 2020, the stock price of the bank tumbled 47.4 per cent at the bourse compared with 28.5 per cent decline in the headline Sensex index. Meanwhile, the BSE Bankex index corrected 40 per cent during the period.

Here’s what analysts expect from the Q4FY20 numbers:

ICICI Securities

Kajal Gandhi and Vishal Narnolia, research analysts at the brokerage, believe that Covid-19 breakout and merger process would lead to sluggish business growth during the quarter under review. They peg the bank’s NII – any bank’s major source of income – at Rs 7,331 crore, up 3 per cent sequentially. As such, the net interest margin is seen at 2.75 per cent.

“The nationwide lockdown could lead GNPA to increase to Rs 82,286 crore with GNPA ratio at 11.38 per cent. Accordingly, credit cost is seen continuing to be elevated at 69 bps. Such higher provisioning is seen keeping profitability lower at Rs 365 crore compared to loss of Rs 1,407 crore in Q3FY20. Significant exposure to the telecom sector, around Rs 14,000 crore, remains a key monitorable,” they wrote in their earnings preview note.

Motilal Oswal Financial Services

The brokerage sees the bank narrowing its loss in the March quarter to Rs 1,236.8 crore on the back of Rs 2,484.6 crore tax out flow. It estimates a pre-tax profit of Rs 1,247.8 crore, compared to pre-tax loss of Rs 2,197 crore incurred in the December quarter of the current fiscal.  

As regards operating profit, the brokerage pegs it at Rs 4,716.4 crore, a dip of 4.8 per cent quarter on quarter (QoQ), from Rs 4,958.5 crore in Q3FY20.

Edelweiss Securities

“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,” noted Santanu Chakrabarti and Prakhar Agarwal in an earnings expectations report.

They estimate a wider net loss of Rs 1,659.2 crore for the recently concluded quarter, while pre-provision operating profit (PPoP) is seen at Rs 5,096.7 crore, up 3 per cent QoQ, from Rs 4,958.5 crore logged in Q3FY20.

Prabhudas Lilladher

The analysts at the brokerage believe that lower provisions at Rs 4,413.9 crore, could lead to a net profit of Rs 97.2 crore. The bank had provisions worth Rs 7,155.4 crore in Q3FY20 and Rs 10,341 crore in Q4FY19.

“Loan growth may continue to remain limited and margins may be impacted adversely. Asset quality, however, is expected to improve marginally though may remain at elevated levels. Credit costs are expected to come down during the March quarter,” they said in an earnings preview note.

They peg the sequential loan growth at 4 per cent to Rs 6.79 trillion from Rs 6.54 trillion in Q3FY20. The same was Rs 6.51 trillion in the year-ago quarter.

Kotak Institutional Equities

“We expect better headline performance on account of lower slippages and stable operating performance. However, negligible exposure or sale of NPLs in earlier quarters implies that the resolution led impact on BoB would be the lowest amongst most PSU banks. We expect fresh slippages at less than 3 per cent as the bank has already reported the two stressed NBFCs and plastics group as NPL in the previous quarter. The bank has a high exposure to NBFCs which needs to be monitored. Progress of the merger would be discussed,” notes the brokerage.