Sharekhan has given Buy recommendation for Bank of Baroda with a target price of Rs. 165 in its research report issued on Sep 14, 2022
Sharekhan’s research report on Bank of Baroda
Bank of Baroda (BOB) has seen steady improvement in its asset quality (net NPAs) at multiyear low of 1.58%, led by lower slippages in corporate book. Lower slippages should clearly sustain over the medium term because of improvement in the corporate credit cycle. Credit cost (as a of percentage of avg. loans) was also at a multi-quarter low of 0.9% in Q1FY23, owing to accelerated provisions made in earlier quarters (PCR at ~76%) as well as lower slippages. Benign credit cost is likely to support earnings trajectory in the medium term. Credit cost guidance stands at 1.25-1.50% of advances versus 1.8% in FY22. Margins are expected to improve by 10-15 bps from FY22 as the bank is focusing on the higher-margin segment – mid-corporate loans, personal loans, and gold loans within the retail segment. Also, a higher share of floating rate loans ~90% would support the margins and would offset a modest increase in cost of deposits.
Outlook
Margin improvement & lower credit cost are key catalysts for improvement in RoA (From 0.6% in FY22 to 0.8% inFY23E/34E) going forward. At the CMP, the stock trades at 0.8x/0.7x its FY23E/24E ABV. We maintain Buy with a revised PT of Rs. 165. Our preferred picks among PSU banks basket remains SBI and BOB.