Bank of Baroda Is A Stock To Buy For 43% Returns, Says Motilal Oswal

Broking firm, Motilal Oswal has recommended the stock of Bank of Baroda for an upside target of 43%. The broking firm has set a price target of Rs 135 on the stock.

Advances at the bank grow, fresh slippages increase

According to Motilal Oswal, Bank of Baroda reported a steady operating performance, but higher provisions affected its earnings adversely (20% miss) as the bank further strengthened its balance sheet. Business growth was strong with loans growing 6% QoQ.

Advances at the bank grew strongly at 6.1% QoQ (+10% YoY). Among segments, Retail loans grew 8.9% QoQ (16.8% YoY), while the Corporate book rose 3.5% QoQ. SME/Agri book increased 5%/4% QoQ. Deposits grew 8.2% YoY (+7% QoQ). Domestic CASA ratio stood broadly stable at 44.2%.

On the asset quality front, fresh slippages increased to Rs 45.1 billion (2.6% annualized) led by one Retail account of Rs 17 billion. However, healthy recoveries and write-offs resulted in 64bp/53bp QoQ improvement in GNPA/NNPA ratios to 6.6%/1.7%, respectively. PCR improved 470bp QoQ to ~75%. Further, total SMA 1/2 (>INR50m) book declined to 0.44% while CE (ex-Agri) stood at 97% in Mar'22.

Buy the stock of Bank of Baroda for a target of Rs 135

Bank of Baroda reported a steady operating performance while higher provisions impacted net earnings adversely. Business growth was strong at 6% QoQ led by healthy trends across segments while margin witnessed a slight decline. CASA mix was broadly stable, which should shield the rise in deposit cost as interest rates harden. Asset quality improved even as slippages were elevated, with CE being strong at 97%.

"We cut our FY23E earnings by 16% to factor in lower other income (due to rising bond yields). We estimate FY24 RoA/ RoE at 0.9%/13.1% and value the stock at Rs 135 (premised on 0.7x FY24E ABV). Maintain buy," broking firm, Motilal Oswal has said in its report.