Broking firm Emkay Global is bullish on the stock of Bank of Baroda and has a target price that is 35 to 40% higher from current levels. The broking firm has set a price target of Rs 110 on the stock from the current market price of Rs 79.50.
"Despite a higher recovery in written-off accounts and contained provisions, Bank of Baroda posted a loss of Rs 10.5 billion (est: net profits of Rs 4.5 billion) mainly due to DTA reversal as it moved to a new lower tax structure. Impressive asset quality performance with gross non performing assets (GNPA) ratio down at 8.9% (vs. 9.6% pro forma in Q3) due to lower slippages and lower RSA pool at 1.6%," Emkay Global has said in a report
Retail growth trend healthy
The broking firm has also noted that the retail growth trend remains healthy at 14%, but corporate remains a drag.
"Bank of Baroda expects reasonable pick-up in corporate growth during H2FY22, thereby supporting overall growth and margins. Cost saving with merger synergies kicking-in should support core return on assets," Emkay Global has said.
Management expects overall slippages/LLP in FY22 to be lower vs. FY21 (2.7%/2%) due to lower stress in corporate pool, including overseas exposure. 60% of international fresh NPAs in FY21 will be restructured, leading to an upgrade. BOB may consider selling stake in its life insurance venture and also onboard a partner to ramp up the card subsidiary.
According to Emkay Global Bank of Baroda has recently raised capital via QIP, leading to reasonable CET 1 at 10.9% now vs. 9% in Q3.
"With merger and asset quality pain largely behind, we expect BOB's RoE to gradually improve to 10-12% over FY23-24E from a low of 1% in FY21. Retain Buy with a revised target price of Rs 110 based on 0.8x FY23E ABV (vs. 0.6x). Key risks: Higher NPA formation, mainly in corporate/SME book; and slower-than-expected growth trajectory," the broking firm has said.
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