BoB Q2 preview: Lower treasury gain, elevated credit cost may cap profit

MOFSL pegs Bank of Baroda's net profit at Rs 139.4 crore for the recently concluded quarter as against net profit of Rs 737 crore in the year-ago quarter

State-owned Bank of Baroda (BoB) is set to report its September quarter earnings for FY21 (Q2FY21) on Thursday, October 29. Lower treasury gains, flat net interest income (NII) and net interest margin (NIM), and elevated credit costs may cap net profit, say analysts.

During the quarter, the stock price of the bank underperformed at the bourses. Between June 30 and September 30, 2020, the stock price of the lender crashed 15.5 per cent on the BSE, as against a 9 per cent growth in the S&P BSE Sensex.

Here's what leading brokerages expect from Q2 nos:

Motilal Oswal Financial Services

The brokerage sees the bank's elevated credit cost and moderated NII to dent earnings during the quarter under review. The deposits are seen growing around 6.5 per cent year-on-year (YoY) to Rs 9.5 trillion from Rs 8.9 trillion reported in Q2FY20. Sequentially, loan book may grow marginally from Rs 9.3 trillion. Credit book, on the other hand, may grow around 9 per cent to Rs 7 trillion from Rs 6.3 trillion in Q2FY20 and Rs 6.8 trillion in Q1FY21.

Furthermore, the brokerage pegs the net profit at Rs 139.4 crore for the recently concluded quarter as against net profit of Rs 737 crore in the year-ago quarter. Sequentially, the bank may turn around from a net loss of Rs 864.3 crore incurred in Q1FY21.

Phillip Capital

Analysts here expect the lender's margins to remain under pressure due to cut in MCLR (marginal cost of funds-based lendinf rate). It sees the NIM at 2.65 per cent, as against 2.6 per cent QoQ and 2.95 per cent YoY.

Revenue from interest income, meanwhile, is seen growing just 1 per cent sequentially and declining 2 per cent on a yearly basis to Rs 6,887.4 crore. In Q1FY21, the NII was Rs 6,816 crore and Rs 7,028 crore in Q2FY20.

Key thing, the brokerage said, to watch out would be the management's guidance on restructured book amid expectations of 33 per cent quarterly jump in slippages to Rs 4,000 crore from Rs 3,002 crore seen in Q1FY21.

The brokerage's PAT estimate stands at Rs 541.7 crore.

Elara Capital

Contrary to other analysts' projections, analysts at the brokerage foresee the lender reporting a net loss of Rs 395.1 crore during the September quarter. Pre-tax loss, meanwhile, is seen at Rs 598.6 crore compared with a pre-tax profit of Rs 1,126.8 crore in the year-ago quarter and pre-tax loss of Rs 1,307.8 crore reported in Q1FY21.

Treasury gains are expected to decline from Rs 541 crore in the previous quarter to Rs 480 crore in the recently concluded quarter. The securities' based gains were Rs 942 crore in the September quarter of FY20.   

While gross NPA ratio may remain stable 9.5 per cent, the brokerage sees provisions rising 17 per cent YoY to Rs 4,920 crore, up from Rs 4,209 crore in Q2FY20. On a quarterly basis, they may decline around 13 per cent from Rs 5,627.7 crore earmarked in the June quarter of FY21.

Kotak Institutional Equities

The brokerage expects a better performance from the bank than Q1FY21 given the one-off provisions made on certain standard loans could get reversed this quarter. Besides, they expect a largely unchanged business performance to the previous quarter resulting in a flattish operating performance, excluding treasury gains, which could tank 52 per cent YoY and 17 per cent QoQ to Rs 450 crore.

Pre-provision profit is seen at Rs 4,329 crore, down 20 per cent YoY, from Rs 5,335.9 crore in Q2FY20, but up 0.2 per cent sequentially from Rs 4,320 crore logged in Q1FY21. Net profit is estimated at Rs 675.6 crore.

Further, they said the focus would be on the commentary on the pipeline for restructured loans for the bank by Q4FY21 and near term impact, if any, due to Covid on the small ticket loan portfolio.