2 Bank Stocks To Buy For Gains Up To 30% In 1-Year

The Sensex has traded in an around that 60,000 points mark for the last couple of months. "Going ahead, market is likely to be range bound given mixed global cues and last leg of earnings season. Otherwise the domestic macro trends continue to be encouraging while active covid cases continue its declining path," says Siddhartha Khemka, Head, Retail Research, Motilal Oswal Financial Services Ltd.

Here are 2 stocks from the Banking sector that have been rated as "buy" from brokerage firm Emkay Global.

Buy, Bank of Baroda stock

Current market price	Rs 101.35
Target price	Rs 130
Gains	28.27%

According to Emkay Global, despite lower growth/NIM, Bank of Baroda reported a strong beat on net profit at Rs 21 billion (est. Rs 10 billion), mainly aided by higher other income, DHFL recovery of Rs 8.8 billion and contained provisions.

"The gross non performing assets ratio improved by 76 bps qoq to 8.1%, while the standard net restructured book rose marginally to 3% of loans (2.9% in Q1)," the brokerage has said.

Better growth in H2 to support NIM uptick for Bank of Baroda

According to Emkay global, overall credit growth was moderate for Bank of Baroda at 4% yoy to Rs6.9bn due to corporate drag and sub-par retail growth.

"Within retail, mortgage growth was relatively slower, while PL was up 33% yoy and auto was up 23% yoy. Growth in gold loans was also strong at 147% yoy, albeit on a low base. According to management, corporate is seeing a pickup in Q3 with decent brownfield and working capital expansion proposals in the pipeline. The domestic CASA ratio improved slightly to 43.5%. However, slower growth and interest reversals led to a 19bps qoq compression in NIM to 2.9%. Going forward, the bank plans to improve growth/LDR, which, coupled with better traction in retail and lower interest reversals, should improve NIMs," the brokerage has said.

Valuations and outlook for Bank of Baroda

Bank of Baroda remains well-capitalised with Standalone Bank CET 1 of 11.4% and easing asset quality stress, which is expected to accelerate growth, according to Emkay Global.

"This should drive up margins, which, coupled with lower LLP, should lead to gradual improvement in its RoE trajectory to 10-12% over FY23-24E from a low of 1% in FY21. Retain Buy with a revised target price of Rs 130, based on 0.8x Dec'23E ABV," the brokerage has said.

Buy Karur Vysya Bank stock

Current market price	Rs 59.95
Target price	Rs 72
Gains	20.10%

The brokerage also has a buy call on the stock of Karur Vysya Bank.

"KVB reported a strong net profit beat (Rs 1.6bn vs. estimate of Rs 1 bn), mainly on better margins, lower opex (despite providing for family pension) and contained provisions.

Asset-quality performance was mixed. The GNPA ratio was down 59 bps qoq to 7.4%, but
the restructured pool inched up 120 bps to 3.2% of loans - which is reasonable vs. Peers," the brokerage has said.

"We maintain our Buy rating with a revised Dec'22 target price of Rs72 (Rs 62 earlier), valuing the bank at 0.7x Dec'23E ABV, factoring in a better liability and capital profile; good/reasonable asset-quality performance in the current challenging times vs. peers; and an expected steady improvement in return ratios," the brokerage has said.