PSU Banking Stock Hit 52-Week High, Strong Beat On PAT At Rs. 33.1bn, Buy Stock: Emkay Global

Leading brokerage firm Emkay Global has given a buy rating to the stock of Bank of Baroda. The bank reported a strong beat on PAT at Rs. 33.1bn, mainly led by robust growth, sharp 31bps QoQ jump in margins to 3.3% and lower LLP. Additionally, NPA ratio declined 94bps QoQ due to higher recoveries/w-offs.

Stock To Buy: Target Price

The Current Market Price (CMP) of Bank of Baroda is around Rs. 145. Emkay Global has estimated a Target Price for the stock at Rs. 175. This stock has the potential to give a 21.1% return, in the upcoming 12 months. It is a large-cap stock with a market capitalization of Rs. 86,051 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 145
Target Price	Rs. 175
Potential Upside	21.10%
52-week high share price	Rs. 167
52-week low share price	Rs. 77.05

Stock Valuation

Giving a buy rating, Emkay Global stated, "We have revised our earnings for FY23-25E by 18%-22% and the rollover TP to 0.8x September 24E ABV, leading to revision in target price to Rs175/share (up from Rs140). We retain our Buy rating on the stock. Bank guides for ~0.9% RoA in FY23 and ~1% in FY24 on the back of better growth/moderation in LLP, partly offset by increase in staff cost (Rs. 2.5bn per quarter) due to the impending new wage negotiations."

Healthy Q2 Earnings

Bank of Baroda (BoB) reported a strong credit growth at 21% YoY/5% QoQ that was supported by continued strong traction in the retail and overseas book. The bank expects domestic corporate growth to accelerate too, more so in the seasonally-strong Q4. This, coupled with continued asset re-pricing, should keep margins healthy. NIMs improved by 31bps QoQ to 3.3% bolstered by strong growth, asset re-pricing, one-off interest recovery on upgradation of lumpy account and swap unwinding.

Stock upside - reduction in NPA

Fresh slippages were elevated at Rs. 44.7bn/2.6% of loans, but higher recoveries/upgrades and w-offs led to a sharp 94bps reduction in the overall GNPA ratio to 5.3%. The restructured pool sharply moderated to Rs. 177bn/2.1% of loans vs 2.5% of loans in Q1. Given the improving repayments, the RSA pool should trend down further. However, a rising share of the low-margin overseas book and moderation in the CASA ratio is a major risk.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.