Bank of Baroda (BOB) reported an in-line Q4 profit, but slippage rose sharply sequentially led by agri and MSME. Provisions jumped as the bank provided for its aviation exposure fully. Analyst remained largely positive on BOB prospects but felt its valuation discount to State Bank of India (SBI) is justified.
Motilal Oswal said BOB's Q4 results were characterised by one-offs. Adjusting for the one-offs, return on asset (ROA) and return on equity (ROE) stood at healthy levels.
"Provisions were high as the bank has provided for its aviation exposure. Margins expanded 17 bps QoQ to 3.27 per cent. Loan growth was healthy at 15 per cent YoY and the bank expects loan growth of 12-14 per cent in FY25. Deposit growth was healthy, while the CASA mix improved. The bank has reduced its dependency on bulk deposits while shifting its focus on CASA and retail TDs, which will support NIMs," it said.
Nuvama said BOB's NII grew 6 per cent QoQ with reported NIM expanding 17 bp QoQ. Adjusted for NPL recovery interest, core NIM was only 5 bps higher QoQ and core NII grew 2 per cent QoQ, lower than SBI and in line with Union Bank and Canara Bank, it said.
There was an unexpected rise in staff cost, whereas the Street expected some decline as the wage hike was settled at 17 per cent versus BoB’s assumption of 18 per cent, Nuvama said.
"While BoB is trading at a discount to SBI, we believe the discount is justified given SBI’s lower LDR, better asset quality and lower earnings volatility versus BoB. BoB’s LDR remains the highest among state banks. Prefer SBI to BoB," it said while suggesting a target price of Rs 255 on the stock.
IIFL Securities has upped its earnings estimates by 7-9 per cent and target price to Rs 300 . This broker has upgraded its stock target to 'Buy', citing a 40 per cent discount to SBI, despite similar profitability outlook (average ROA/ROE of 1 per cent/14 per cent over FY25-26.)
Motilal Oswal values the stock at Rs 300. It has raised its FY25 and FY26 EPS estimates by 1.9-2.8 per cent to account for stable margin and contained provisions.
BOB has guided for a consistent CD ratio of 80-82 per cent. Last week, the RBI lifted the ban on on-boarding new customers through the BoB World application and Nirmal Bang sees this as a positive for garnering retail deposits/assets.
"We expect the bank’s loan book and PAT to grow at a CAGR of 13 per cent and 8.6 per cent, respectively over FY24-FY26E, which will result in RoA/RoE of 1.1 per cent/15.3 per cent in FY26E. We have valued the bank at 1.15 times its March’2026E ABV vs 1.1 times December 2025E ABV earlier. We thus derive target price of Rs 296 (Rs 286 earlier) and upgrade our rating on BOB from an ‘Accumulate’ to a ‘Buy’," Nirmal Bang said.