Bank of Baroda shares at Rs 240? Analysts see up to 29% upside post Q4 results. Here's why

Bank of Baroda's healthy other income and lower provisions led to better-than-expected earnings in the March quarter. Analysts said business growth was strong and asset quality improved amid controlled slippages. Net interest income (NII) was in line with estimates and so were margins.

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.

"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.

Kotak Institutional Equities has maintained its 'Add' rating on the stocm with a revised fair value of Rs 200 from Rs185 earlier, valuing the bank at 0.9 times (adjusted) book and 7 times FY2025E EPS for RoEs of 14-15 per cent.

The brokerage said it has have started to build higher provisions for ECL migration until there is a 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 Bank of Baroda is likely to trade at a discount to SBI in this cycle," it said.

Nuvama said Bank of Baroda's exposure to Go Air stood at Rs 1,300 crore and that BOB has tangible security/guarantees of Rs 1,000 crore. Even so, it has made a provision of Rs 500 crore. This was not SMA in Q3FY24.

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