Bank of Baroda shares trade at 0.8 times book value FY25E and at a premium to peers.
Bank of Baroda Share Price Today: Bank of Baroda shares extended gains to the second session in early trade on May 17.
The bank recorded its highest-ever quarterly net profit of Rs 4,775 crore for January-March, reflecting a 168 per cent year-on-year rise. Annual net profit of Rs 14,110 crore was also at a record high, up 94 per cent from FY22’s Rs 7,272 crore.
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Net interest income (NII), the difference between interest earned and spent, surged 34 per cent to Rs 11,525 crore in January-March from Rs 8,612 crore a year ago. Net interest margin came in at 3.31 per cent, compared to 3.03 per cent in the same quarter last year.
Asset quality improved and deposit growth remained robust during the quarter under review.
What Should Investors Do Now?
Bank of Baroda shares trade at 0.8 times book value FY25E and at a premium to peers. With Bank of Baroda earnings outperforming its PSU peers, Nuvama Institutional Equities expects its premium valuation to sustain. The brokerage has raised its target price on the counter to Rs 220, based on 0.95 times BV FY25E, from Rs 195.
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“BOB has made more progress than other state banks in adopting practices of private banks and making private hires. We find the risk-reward attractive at 0.8 times BV FY25E. The bank has delivered RoA of over 1 per cent in the last three quarters. If it can sustain this performance, the stock can likely re-rate to over 1x,” it said.
JM Financial said it expects Bank of Baroda to report RoA of 1 per cent and RoE of 16.2 per cent by FY25, driven by robust loan growth, controlled credit costs and opex. It has built in an average credit cost of 1.01 per cent over FY24-25e. The brokerage finds the Bank of Baroda stock worth Rs 235.
The bank reported a 168.4 per cent YoY growth in net profit at Rs 4,775 crore for the March quarter compared with Rs 1,779 crore in the same quarter last year. Analysts were largely expecting a profit growth of 140 per cent for the quarter. Net interest income (NII) for the quarter grew 33.8 per cent YoY to Rs 11,525 crore from Rs 8,612 crore in the year-ago quarter. Non-interest income was up 37.4 per cent YoY to Rs 3,466 crore from Rs 2,522 crore YoY, the Vadodara-headquartered bank said.
The bank management expects retail loans to grow at 1.5 times of total loan growth. It has guided for advances growth of 13-14 per cent in FY24 and sees margin for FY24 to remain around the FY23 level of 3.31 per cent. The bank has guided for an FY24 return on equity of 16-18 per cent, return on assets of 1 per cent and a credit cost of 1 per cent under normal cycle.
“With healthy other income and lower provisions driving earnings, BOB reported a strong quarter. Margin expanded to 3.53 per cent. Business growth was healthy at 5.6 per cent QoQ, aided by strong traction across segments while CASA mix too saw an increase. Asset quality continues to improve with net NPA at 0.9 per cent. A lower SMA book and controlled restructuring provide further comfort on asset quality,” said Motilal Oswal Securities. The brokerage has a target of Rs 240 on the stock.
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Nirmal Bang Institutional Equities, too, has maintained a ‘buy’ call on the stock after strong March quarter numbers. The brokerage firm has pegged the target price of Rs 230, implying a 23 per cent upside potential as it said BoB continued reporting strong earnings growth on the back of margin expansion and improving asset quality matrix.
Nirmal Bang noted the management commentary which showed the bank continues to focus on margin enhancement and indicated that overall NIM is likely to sustain near 3.3 per cent. Further, it indicated that the bank’s overall coverage ratio remains high and ECL (expected credit loss) provisioning could be near 1-1.5 per cent of the loan book. Moreover, the management indicated that the bank would not have to raise any fresh equity capital as internal accruals are expected to be sufficient for driving growth in the near term.
Kotak Institutional Equities maintained an ‘add’ call on the stock but raised the target price to Rs 200 from Rs 185.
“We maintain add rating with a revised fair value of Rs 200 ( Rs 185 earlier), valuing the bank at 0.9 times (adjusted) book and 7 times FY25E EPS for RoEs of about 14-15 per cent,” Kotak said.
“We have started to build higher provisions for ECL migration until we have greater clarity. Our earnings estimates have room for further upgrades as we are building higher pressure on NIM, which may not necessarily materialise immediately. From a valuation perspective, we believe BoB is likely to trade at a discount to SBI in this cycle,” said Kotak.
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