PSU Bank Trading Over Rs 100 Recommended To Buy By Sharekhan; 19% Potential Upside Ahead

PSU bank stock, Bank of India, has continued to outperform on the backdrop of sustained improvement return ratio profile aided by strong asset quality trends, said brokerage Sharekhan in its latest research note. This PSU stock which trades over Rs 100 is currently affordable with room for more upside in the near term. Sharekhan has set a target price of Rs 135 on the bank's stock, implying over 19% gains in the near term compared to the current market price.

According to Sharekhan's note, strong sector tailwinds are supporting overall performance. RoA in H2FY2024 is expected to reach ~1.0% and is likely to sustain in the near to medium term.

It added, as per the Bank of India's management, that the lender's balance sheet has further strengthened after the recent capital raise - capital ratios are healthy, with CET-1 Capital at ~13.8% (post capital raise vs minimum requirement of ~8%). The bank's excess liquidity profile (credit-deposit ratio ~74%, LCR ~160%) in an environment of deposit growth challenges, places it well to grow the book without worrying about deposit growth.

Also, the brokerage's note highlighted that the Bank of India is eyeing an 11-12% loan growth in FY24E. The bank is guiding that it has a strong credit pipeline of Rs. 70,000 crore (Rs. 50,000 crore in the domestic corporate book; Rs 12,000 crore in RAM & rest is in the international book).

"We believe the bank is likely to deliver higher growth led by a strong credit pipeline, balance sheet strength has also been improving passing each quarter coupled with some of the new initiatives taken recently like- the formation of 18 emerging corporate credit branches to cater to corporate needs in their specific area of operation, signed various MOU for financing large infra projects etc," Sharekhan's note added.

On net interest margin, Sharekhan's note added, "Although NIMs would stay stressed in the coming quarters led by repricing of deposits driven by sharp increase in cost of deposits in recent times but the bank is aiming to maintain the NIMs above 3% (Currently ~3.1%) driven by increasing yield on advances through RAM and Corporate segment. BOI aims to protect margins rather than chasing growth."

On the valuation, the brokerage said "Valuations are still reasonable, considering the improvement in RoA trajectory, which is expected to reach closer to ~1% in coming quarters. Strong asset quality trends are likely to sustain and narrow the perceived gap in underwriting with respect to peers. Valuations are expected to inch higher as the return ratio profile improves in the coming quarters on account of stable loan growth/margins and lower credit cost. The stock currently trades at 0.7x/0.6x its FY2025E/FY2026E ABV."

Hence, Sharekhan maintained BUY on the bank's stock price with a revised target price of Rs 135.

On BSE, the bank's stock price is at Rs 113.20 apiece, up by 0.53% on Monday with a market cap of Rs 51,536.20 crore. The stock is nearing its 52-week high of Rs 120.95 apiece. In a year, the stock has gained by nearly 24% on the exchange.

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.