Bank of Baroda (BOB), one of the leading public sector lenders,  reported a strong earnings performance, supported by a healthy core operating performance, despite sluggish business trends. Domestic NIM improved sharply by 39bp QoQ to 3.12%.

Asset quality trends were stable sequentially in a challenging environment, with fresh slippage at Rs 51.3 billion (annualized slippage rate of 3.1%). However, higher write-offs and upgrades resulted in stable asset quality trends - the GNPA/NNPA ratio declined 1bp/6bp QoQ, while PCR was broadly stable at ~68%. Also, total SMA 1/2 (>Rs 50 million) declined to ~2.68%, while the restructured book stood at 3.2% of loans. Collection efficiency (ex-Agri) was stable QoQ at 93%, better vis-à-vis many other peers.

Commenting on the result review, Motilal Oswal Institutional Equities said, "The bank expects growth to pick up, led by retail segments, while corporate growth would see gradual recovery as the economic situation normalizes. We increase our earnings estimates by 47%/22% for FY22/FY23E and estimate RoA/RoE of 0.7%/10.3% by FY23E. Therefore, we upgrade our rating to BUY, with revised TP of Rs 100 (0.7x FY23E ABV)."

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