Analysts raise target on Bank of Baroda post Q4, see up to 29% upside

Bank of Baroda Q4 results: Key brokerages have raised their target prices on Bank of Baroda after the state-owned lender posted better-than-expected March quarter (Q4FY23) results.

Analysts now see up to 29 per cent upside in the stock from a one-year perspective as they believe BoB is well-placed among the large public banks with nearly all key business metrics moving closer to the top-tier banks.

Valuations, too, remain attractive despite steady strong quarterly performances.

On the bourses, shares of BoB ended 0.3 per cent lower on the National Stock Exchange (NSE).

By comparison, the benchmark Nifty50 index slipped 0.57 per cent, while the Nifty PSU Bank index fell 0.34 per cent.

Bank of Baroda’s net profit grew 168 per cent year-on-year (YoY) at Rs 4,775 crore for the quarter ended March 2023 on healthy growth in advances and net interest income (NII).

NII grew 33.8 per cent YoY to Rs 11,525 crore in Q4FY23 compared to Rs 8,612 crore in Q4FY22.

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The net interest margin, too, improved by 45 basis points YoY to 3.53 per cent during the period under review.

Here is how key brokerages interpret the results:

JPMorgan ‘ Maintains Overweight ‘ Target price (TP): Rs 230

The brokerage believes Bank of Baroda’s guidance of 1 per cent for return of asset (RoA) in FY24 is conservative as value crystallisation in insurance subsidiaries could provide additional positive triggers.

Nuvama Institutional Equities ‘ Maintains Buy ‘ TP: Rs 220 (earlier Rs 195)

BoB is among the few banks that has demonstrated its ability to grow deposits along with loans in FY23. In Q4FY23, domestic deposits grew 4 per cent QoQ (13 per cent YoY) higher than 2 per cent for the sector.

Performance on savings account (SA) was strong with 4 pe cent QoQ growth.

Domestic CASA jumped to 44.2 per cent, from 41.6 per cent.

Consequently, NIM grew by a wide margin of 16bp QoQ and NII grew 34 per cent YoY/6 per cent QoQ.

We find the risk-reward attractive at 0.8x 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.

Emkay Global ‘ Maintains Buy ‘ TP: Rs 230 (earlier Rs 220)

The bank has indicated that incremental expected credit loss (ECL) provisioning requirement will be 1-1.5 per cent of loans, which is lower than peers and will be largely absorbed, given its healthy internal accruals.

We expect the bank to deliver strong RoA/RoE of 0.9-1.1 per cent/15-16 per cent over FY24- 26e, while healthy CET 1 at 12.2 per cent vs peers provides comfort.

Kotak Institutional Equities ‘ Maintains Add ‘ TP: Rs 200 (earlier Rs 185)

Building a buffer ahead of the next slowdown appears to be a prudent approach and we don’t see it negatively.

We believe NIM and loan growth would be under pressure but lower credit costs could keep overall return on equity (RoEs) comfortable at 14-15 per cent levels.

Our earnings estimates have room for further upgrades as we are building higher pressure on NIM, which may not necessarily materialize immediately.

From a valuation perspective, we believe BoB is likely to trade at a discount to SBI in this cycle.

Elara Capital ‘ Maintains Accumulate ‘ TP: Rs 196 (earlier Rs 182)

We believe NIMs have peaked out and expect a moderation hereon as deposit cost rise may supersede yield benefits (sans any RBI rate hike), even as the loan mix change (composition of retail and unsecured mix) and some repricing on MCLR may offer some cushion.

While BoB aims to maintain flat FY24 NIMs (over FY23), we conservatively factor in a 12-13bps decline.

Meanwhile, the bank has highlighted manageable impact (based on preliminary assessment) of ECL transitions; we would have preferred BoB to use such profitability to create a buffer.

JM Financial ‘ Maintains Buy ‘ TP: Rs 235 (earlier Rs 195)

We expect BoB to report RoA/RoE of 1 per cent/16.2 per cent by FY25e driven by robust loan growth (led by continued momentum in retail segment), controlled credit costs and opex; we built in average credit cost of 1.01 per cent over FY24-25e.

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