This Mid Cap Public Sector Bank Reported PAT Of Rs 21.7b, Brokerage Suggests Buy For 32% Gains

Motilal Oswal suggests buy the shares of the Bank of Baroda for a target price of Rs 150 apiece in its recent report on the bank published on 31st Jul;y 2022. Bank Of Baroda reported a healthy 1QFY23 as core PPOP grew 11% YoY, while lower provisions drove net earnings (a significant beat). Business growth was healthy, with loans growing 3% QoQ. However, the margin moderated by 6bp QoQ. Asset quality improved as fresh slippages moderated to INR32.7b, resulting in a significant decline in credit cost, with PCR increasing further to ~76%. Total SMA 1/2 (over INR50m) stands controlled at 48bp of loans. Collection efficiency (excluding Agri) improved to 98% in Jun'22. According to the brokerage, bank asset quality improves further as it has given healthy business growth. The brokerage sees potential gains of 32% if the shares of the company are purchased at the current market price.

Stock Outlook & Returns

Bank of Baroda is a mid-cap Public sector bank with a market capitalization of Rs 60,117.09 crore.

Today the shares of the bank opened at Rs 117.50 apiece, and currently trading at Rs 114.30, falling 1.68%., respectively.

Last week, Friday, 29 July, the shares bank closed at Rs 116.25 apiece giving a positive return of 0.13% in a week. It has moved up around 14.93% in the past 1 month, 44.23% in the past 1 year, and 6.65% in the past 3 years, respectively. However, in the past 5 years, the shares of the bank have fallen 28.04%.

The 52-week low of the stock record on 23 August 2021 is Rs 72.50 apiece, and the 52-week high recorded on 11 April 2022 is Rs 122.70 apiece.

The ROE of the stock is 8.54. TTM PE ratio is 7.44 and PB ratio is 0.65. TTM EPS is Rs 15.41. The dividend yield is 2.48% and the face value is Rs 2.

Margin declines by 6bp QoQ; PCR improves to ~76%

BOB reported a PAT of Rs 21.7b (MOSLe: Rs 12.8b), driven by lower provisions, which declined by 58% YoY to Rs 16.8b. NII grew 12% YoY and 2.6% QoQ (inline), even as margin contracted by 6bp QoQ to 3.02%. Other income declined by 59% YoY to Rs 11.8b, impacted by a treasury loss of Rs 5.9b. Core fee income, however, grew 16% YoY. PPOP fell 19% YoY to Rs 45.3b (10% miss), while core PPOP grew 11%. The bank availed the option to defer the increased family pension cost over a five-year period and provided Rs 727m in 1QFY23, while the balance of Rs 10.9b is to be amortized subsequently.

Advances registered a healthy growth of 2.9% QoQ and 20% YoY. Among segments, Retail loans grew 5.1% QoQ and 23.2% YoY, while the Corporate book was flat QoQ (up 17% YoY). The SME/Agri book grew 11%/14% QoQ. Deposits grew 11% YoY (down 1% QoQ). The domestic CASA ratio stood stable at 44.2%. On the asset quality front, fresh slippage moderated to Rs 32.7b (~2% annualized), which, coupled with healthy recoveries and write-offs, resulted in a 35bp/14bp QoQ improvement in GNPA/NNPA ratio to 6.3%/1.6%. PCR improved to ~76%. Total SMA 1/2 (over Rs 50m) book stands modest at 0.48%, while CE (excluding Agri) stood at 98% in Jun'22.

Brokerage Recommends Buy For a Target Price of Rs 150 apiece

Bank Of Baroda reported a broadly steady operating performance, while lower provisions drove net earnings. Business growth stood healthy at 3% QoQ, led by Retail loans, while margin declined slightly. CASA mix was largely stable, which should shield the rise in deposit cost as interest rates harden. Asset quality improved as slippages moderated, with CE strong at 98%. "We increase our FY23/FY24 earnings estimate by 22%/11%, factoring in higher NII and lower credit cost. We estimate a FY24 RoA/RoE of 1%/13.7% and value the stock at Ra 150 (0.8x FY24E ABV). We maintain our Buy rating," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Motilal OOswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.