Bank Of Baroda Stock Corrects Steeply After Mixed Q2; Does The Latest Fall Gives Buying Opportunity?

Leading public sector lender, Bank of Baroda's share price has corrected steeply on Monday after a mixed quarter for the period July to September 2023. BoB shares ended at Rs 195.55 apiece, down by 4.02% on BSE with a m-cap of over Rs 1.01 lakh crore. The latest sharp selling comes as a buying opportunity in BoB shares. The majority of brokerages have suggested buying with potential gains of nearly 23% ahead.

During the quarter, the bank posted a net profit of Rs 4,253 crore, rising by 28.4% from the profit of Rs 3,313 crore in the same quarter a year ago. While net interest income (NII) which is the difference between interest earned and expended, stood at Rs 10,831 crore, registering single-digit growth of 6.5% YoY.

Asset quality continued to improve in Q2FY24. Gross NPA stood at 3.32% in Q2FY24, as against 3.51% in Q1FY24 and 5.31% in Q2FY23. Net NPA was at 0.76% in Q2FY24, as against 0.78% in Q1FY24, and 1.16% in Q2FY23.

Brokerages like JM Financial, Motilal Oswal, and Prabhudas Lilladher has recommended buying with target price ranging from Rs 235 to Rs 240 levels.

Talking about the latest Q2 results, JM Financial's note said,"Bank of Baroda (BOB) reported a beat on PAT which stood at INR 42.5bn (+28.4% YoY, +4.5% QoQ, +4.8% vs JMFe) primarily led by healthy loan growth (+19.3% YoY, +3.6% QoQ) and higher other income aided by fee income. While credit costs remained low at 84bps (vs 83bps QoQ), slippages increased to INR 47.5bn with gross slippage ratio at 2.09% (+82 bps QoQ) and net slippages at 1.12% (+74bps QoQ). This was attributed to slippages in two large accounts; one in aviation amounting (outstanding INR 17.73bn) and another in real estate."

Further, JM's note added, "While slippages remained high and are to be closely monitored in the coming quarters, mgmt. expects recoveries to see a continued momentum. Mgmt. anticipates recoveries of ~ INR 20bn expected in 2H24."

On the valuation, JM said, " We maintain our earnings estimate driven by continued loan growth momentum, healthy operational performance and low credit costs. While, higher slippages were a dampener on earnings in 2Q24 we do not expect meaningful deterioration in asset quality in coming quarters. We build loan growth of 15% over FY24-25E and avg. RoA/RoE of 1.0%/15.9% over FY24-25E. BOB currently trades at 0.9x BVPS and we maintain BUY with a TP of INR 235, valuing BOB at 1.0x FY25 BVPS."

Further, Motilal Oswal's note said, "BOB reported a mixed quarter characterized by robust fee income even as margins compressed further by 20bp QoQ to 3.07%. Business growth was healthy at 19% YoY, aided by strong traction across segments. The CASA mix saw a slight
moderation. Fee income growth is a focus area and will help offset the persistent softness in NII growth. The bank reported a surge in recoveries from written-off accounts and has guided for continued traction in 2HFY24 as well."

Additionally, Motilal's note said, "Asset quality continued to improve with NNPA at 0.76%, while lower SMA book provides further comfort on asset quality. We maintain our earnings estimates and expect FY25E RoA/RoE of 1.2%/16.8%. We value the stock at INR240 (1.1x FY25E ABV) and reiterate our BUY rating."

Lastly, Prabhudas Lilladher's note said, "BoB has decided to slow down wholesale deposits and focus on garnering CASA via RM-based model. Apart from stressed airline (Rs17.7bn), a middle-east based account from real estate sector slipped to NPA. We maintain our multiple at 1.1x but increase TP from Rs235 to Rs240 as we roll forward to Sep'25 ABV. Retain 'BUY'."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.