Stock To Buy: Government Bank Stock That Can Give 41% Returns

Share in Bank of Baroda are finally surging. In trade today, the stock was up a whopping 8%, thanks to stellar financial performance. Here is why you should buy the bank's stock.

Solid quarterly numbers of Bank of Baroda

Bank of Baroda reported good financial performance led by a strong recovery in Net Interest Income and lower provisions even as lower treasury gains impacted other income. Domestic net Interest Income, thus, expanded 31bp QoQ to 3.2%. Advances registered strong 5.5% QoQ growth.

"Bank of Baroda reported a net profit of Rs 22 billion (significantly above our estimate), led by a strong recovery in NII growth and lower provisions that declined 27% YoY to INR25.1b. Consolidated PAT surged 106% YoY to INR24.6b driven by a healthy performance across subsidiaries/JV," Motilal Oswal said in a report.

Advances registered strong 5.5% QoQ growth (+4.8% YoY). Among segments, retail loans grew 4.5% QoQ (11.1% YoY), while the Corporate book shot up 6% QoQ (flat YoY). SME/Agri book increased 4%/5% QoQ, according to a Motilal Oswal report.

41% Upside potential on the stock

Broking firm, Motilal Oswal sees an upside of nearly 41% on the stock. However, since the stock is up almost 8% today, the upside potential on the stock by the brokerage firm can be taken as around 33%. Even that is sizeable by any stretch of imagination.

"The bank reported a sharp improvement in asset quality ratios, with CE strong at 96%. Moreover, SMA 1/2 declined to 1.12% of loans which provides comfort on incremental slippages. We raise our FY22E-24E earnings sharply by 11%-13% and estimate RoA/RoE of 1%/14% for FY24E. Maintain buy with a higher target price of Rs 150 (based on 0.8x FY24E ABV), implying 41% potential upside," Motilal Oswal has said.

Shares in Bank of Baroda were last seen trading at Rs 115.70 on the NSE. While we do recommend brokerage reports, we out telling our readers to be careful when investing as rising interest rates globally, could put a cap on returns from stocks this year.

Disclaimer

Investing in equities is risky and investors must therefore understand the risk. The author and Greynium Information Technologies Pvt Ltd would not be responsible for any losses caused based on the article. The author and his family do not hold shares in Bank of Baroda as on the date of writing the article. Investors should note that stocks based on new developments can be exceedingly volatile for a few days in trading. It is best to let the share price stabilize before investing.