Bank of Baroda's June quarter results failed to meet Street estimates due to lower-than-expected fees and other income. While the asset quality was stable, MSME and retail slippages jumped sequentially. The PSU bank stock is reasonably valued, following its recent underperformance over peers, but there are concerns over a likely pressure on net interest margin (NIM) and credit cost ahead.
The PSU bank stock gained 8.88 per cent in 2024 so far. Against this, Canara Bank rallied 29 per cent, Punjab National Bank (PNB) 26 per cent, State Bank of India (SBI) 16 per cent and Bank of India 11 per cent year-to-date.
Nuvama Institutional Equities said earnings expectations were rebased lower after Bank of Baroda released its weak business update on May 5, wherein balance sheet growth was lower than expected and LDR of 80 per cent was the highest in PSU banks. The domestic brokerage said the core Q1 pre-provision operating profit (PPOP) came in lower than the rebased expectation and retail /MSME slippage rose QoQ. Bank of Baroda shares fell 6.5 per cent in the past one month.
"We are cutting earnings and the target price to Rs 250 from Rs 255; maintain Hold. While the stock has underperformed peers and is trading cheap, there are no positive triggers. We expect NIM and credit cost to be under pressure going ahead. Growth of BOB’s balance sheet, fee and core PPOP is the lowest among state banks in Q1FY25," Nuvama said.
Bank of Baroda said its net profit for the quarter grew 9.5 per cent at Rs 4,458 crore. Net interest income (NII) for the quarter was up 5 per cent at Rs 11,600 crore.
Antique Stock Broking said while there was a miss on earnings, core performance remained healthy. It said a favorable credit cycle would keep the bank’s return on asset (RoA) at around 1.1 per cent and return on equity (RoE) at 17 per cent over FY25–26.
"The stock has underperformed in recent times and it trades at valuations of 1 time FY26 BV and 0.9 times FY27 book value which seems reasonable," it said while suggesting a 'Buy' with an unchanged target of Rs 315.
Nirmal Bang said BOB’s reported results were below its estimates across key parameters, mainly on account of lower other income. Loan growth was down at 8.1 per cent YoY as the bank let go of Rs 25,000 crore finely priced corporate loans in order to maintain its yields. "The deposit growth was also down at 8.9 per cent YoY as the bank shed some high-cost bulk deposits. GNPAs improved from 2.92 per cent to 2.88 per cent on a sequential basis, it said.
This brokerage values BOB at 1.2 times its June 2026 adjusted book value. "Our multiple of 1.2 times ABV is at a premium of 80 per cent over past 5-year average multiple of 0.67 times ABV, which adequately captures loan book/earnings CAGR of 12.3 per cent/7.8 per cent over FY24-FY26E, resulting in RoA/RoE of 1.1 per cent/14.7 per cent in FY26E. We maintain ‘BUY’ rating on BOB," Nirmal Bang said while suggesting a target of Rs 321.