This PSU Banking Stock Gets Buy Rating For Potential Gain Of 12%

Leading brokerage Prabhudas Lilladher has maintained buy rating for the stock of Bank of Baroda for a potential gain of 12% with a target price of Rs 130 apiece. Bank of Baroda (BoB) earnings were a beat with PAT at Rs21.7bn driven by lower credit costs. However, PPOP was miss despite strong NII growth due to lower other income and higher opex. NIM declined QoQ marginally, however with pricing pressures easing, management expects improvement by approximately 10bps.

Bank of Baroda Stock Outlook

The current market price of Bank Of Baroda is Rs 122 apiece with its 52-week high at Rs 123 apiece and 52-week low at Rs 72 apiece. The stock has gained 4.85% till afternoon trading today. The stock has given a return of 50% in 1 year and 15% in 3 year. It has fallen 25% in 5 years. According to the brokerage, if you buy the stock at a current market price of Rs 116 it has a potential to surge to Rs 130 apiece with a potential surge of 12%.

2. Retail remains mainstay, corporate sees revival

Domestic loans grew by 18% YoY/1.7% QoQ with retail accretion being 12.6% YoY with broad-based growth across verticals. Agri Loans grew by 14.4% YoY largely led by gold. Although corporate growth has been tepid, it saw uptick (+17.3% YoY). Within corporate sector; power, petroleum and chemicals witnessed improvement. Overseas book growth was much stronger at 30.6% YoY/7.7% QoQ that led margins being held up in Q1FY23. Loan growth guidance for FY23 was suggested to be higher than the industry growth of 10-12% while scope for margin expansion exists (~10bps). On liabilities, CASA (+10.9% YoY) continues to outpace overall deposit growth of 8.5%

Asset quality held up well, credit costs to be range bound

GNPA/NNPA declined sequentiallymainlyled by lower slippages. Gross slippages came at Rs43.5bn or 1.7% of loans that was largely led by MSME and slippages from OTR pool. Recoveries & write offs were lower QoQ at Rs26bn and Rs32bn respectively, while PCR was steady at 75.9%. Restructured book stood at Rs196bn or 2.5% of loans, of which Rs40bn slipped to NPA(cumulative), while OTR stress pool is ~15-16%. SMA 1+2 declined marginally to 0.44% from 0.48% in 4Q22. Management guided towards a range bound credit cost of 125-150bps led by controlled slippages and steady recoveries.

Valuation

While retail momentum continued, corporate growth revived. Loan growth in FY23 is targeted to be higher than industry growth of 10-12%. Asset quality was better led by lower slippages, guidance to maintain credit costs in the range of 125-150bps. We increase our core earnings estimates by ~4% for FY23/24. We retain our multiple on 0.9x FY24 ABV with TP of Rs130(earlier Rs125), while we change rating to ACCUMULATE from BUY.

About Bank Of Baroda

The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20 July 1908. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the Government of India and has been designated as a profit-making public sector undertaking (PSU).

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. 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.