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Most brokerages have upgraded their rating on Bank of Baroda to 'Buy' and have revised the price target to Rs 100.
Public sector banks are slowly becoming the top picks of analysts. After robust Q1FY22 results posted by India’s largest lender SBI (State Bank of India), most analysts have upgraded their price targets for the counter ranging anywhere between Rs 540-728 per share.
Next to impress analysts with its Q1FY22 results is the Bank of Baroda. The bank reported a standalone profit after tax of Rs 1,209 crore in the quarter ended in June 2021 compared to a loss of Rs 864 crore on a standalone basis in the corresponding quarter of the previous fiscal. The higher profits came on the back of higher growth in NII (net interest income) and lower provisioning for bad loans. NII of the bank grew to Rs Rs 7,892 crore compared to Rs 6,816 crore.
On the margin front also, the numbers were encouraging. Banks global NIM (net interest margin) increased to 3.04% from 2.52% in Q1 FY21 led by domestic margins which improved to 3.12% from 2.59%.
Some pressure was visible on the asset quality front as the bank’s net NPA (non-performing asset) ratio increased to 3.03% as of 30 June 2021 against 2.83% as of 30 June 2020. While gross NPA ratio declined to 8.86% as of 30 June 2021 against 9.39% as of 30 June 2020. Recovery and upgrades increased to Rs 4,435 crore in Q1FY22 as against Rs 818 crore in Q1FY22.
With such strong earnings performance, supported by a healthy core operating performance, despite sluggish business trends analysts are bullish on Bank of Baroda here is what they have to say.
Motilal Oswal | Rating: Buy | Price target: Rs 100
Bank of Baroda reported a healthy earnings performance, supported by strong NII and sharp improvement in domestic NIMs. The margin expansion was supported by an improving asset mix, as retail growth held strong, while corporate loans declined 11% Q-o-Q. The bank expects growth to pick up, led by retail segments, while corporate growth would see gradual recovery as the economic situation normalizes. The bank reported stable asset quality in a challenging quarter.
Motilal Oswal has increased its earnings estimates by 47%/22% for FY22/FY23E and estimate RoA (return on assets)/RoE (return on equity) of 0.7%/10.3% by FY23E. Thereby upgrade the rating to ‘Buy’, with a revised target price of Rs 100 (0.7x FY23E ABV (adjusted book value).
Prabhudas Lilladher | Rating: Buy | Price target: Rs 105
Fresh Slippages were at Rs 51.300 crore (2.9% of loans) mainly from SME/Retail, while restructuring was slightly higher at 2.3% v/s 1.3% in Q4FY22. Overall stressed book (NPAs+Restructured+SMA) is still higher at 8.5% but given PCR (provisions coverage ratio) at 67% (83% incl write-offs), higher provisioning than requirement & gradually lowering slippages should help lower credit cost rate.
Relatively better capital ratios & improving operating performance has made the brokerage firm revise its price target to Rs 105.
ICICI Direct | Rating: Buy | Price target: Rs 100
Bank of Baroda has shown an improved asset quality performance while legacy corporate stress has been mostly dealt with. The brokerage house believes lower slippages and, thus, credit costs along with a pick-up in loan growth should reflect positively on the operational performance of the bank. Also, the benefit of the new tax regime should add to earnings improvement. Sufficient provisions on stressed books provide comfort while recent fundraising has improved overall capital position as well.
Citing this, ICICI Direct has upgraded it rating from ‘HOLD’ to ‘BUY’ and revise it target price to Rs 100, valuing the bank at ~0.75x FY23E ABV.
(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)