Bank of Baroda Q4 results get a thumbs-up from brokerages; can the stock continue to gain?
4 min read 17 May 2023, 09:26 AM ISTBank of Baroda share price has rallied 84 per cent in the last one year against a 14 per cent gain in the equity benchmark Sensex, thanks to its strong credit growth and improving asset quality.
PremiumStock market today: Most brokerage firms cheered the strong March quarter numbers of Bank of Baroda (BoB) as the public sector lender's standalone profit after tax (PAT) more than doubled in Q4 FY23. In a BSE filing on May 16, BoB said its standalone PAT for Q4FY23 rose to ₹4,775.33 crore against a profit of ₹1,778.77 in the corresponding quarter last year.
The bank's gross NPA (non-performing asset) for the quarter fell 32 per cent YoY to ₹36,763.68 crore against ₹54,059.39 crore in Q4FY22. Net NPA dropped 37.3 per cent YoY to ₹8,384.32 crore in Q4FY23 from ₹13,364.65 crore in the same quarter last year.
Read more: Bank of Baroda Q4FY23: PAT more than doubled in Q4FY23; lender declares ₹5.5 dividend
Following the results, the stock closed with a healthy gain of 2.80 per cent on BSE on May 16. On May 17, the stock opened nearly two per cent higher but failed to hold altitude and closed 0.27 per cent lower at ₹185.85.
Bank of Baroda Q4 results: Share price gains on stellar performance; brokerages remain bullish
In the last one year, the stock has rallied 82 per cent against a 13 per cent gain in the equity benchmark Sensex, thanks to its strong credit growth and improving asset quality.
Brokerage firm Motilal Oswal Financial Services maintained a 'buy' call on the stock with a target price of ₹240, implying a 29 per cent upside potential.
"We maintain our earnings estimate on the stock and estimate FY25 RoA (return on assets) and RoE (return on equity) of 1.1 per cent and 16.4 per cent respectively. We value the stock at ₹240 premised on 1.1 times September 24 adjusted book value," said Motilal Oswal.
The brokerage firm highlighted the management commentary on loan growth, margin and return prospects.
"Retail loan growth is expected at 1.5 times total loan growth. Overall, management has guided for an advanced growth of 13-14 per cent in FY24. The margin for FY24 is likely to remain around the FY23 level (3.31 per cent for FY23). The bank has guided for an ROE of 16-18 per cent and a ROA of one per cent for FY24. Management has guided for a credit cost of about one per cent under the normal cycle. ECL (expected credit loss) requirement is likely to be at about 1-1.5 per cent of total loans," Motilal Oswal pointed out.
Read more: Bank of Baroda ends FY23 on a strong note
Brokerage firm Nuvama Wealth Management also maintained a 'buy' call on the stock and raised the target price to ₹220 from ₹195 earlier.
Nuvama raised FY24E and FY25E EPS (earnings per share) estimates for BoB by 1.71 per cent and 2.59 per cent, respectively.
The brokerage firm highlighted that the stock trades at 0.8 times FY25E book value (BV) which is a premium to peers but BoB’s earnings outperformed its PSU peers so the premium valuation may sustain.
"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 more than a per cent in the last three quarters. If it can sustain this performance, the stock can likely re-rate to more than one time," Nuvama said.
"We raise our target price to ₹220, 0.95 times BV FY25E, from ₹195 at 0.9 times. Management quantified ECL impact of 1–1.5 per cent of loans (14 per cent of equity), lower than peers. BoB is our top pick among state-owned banks," said Nuvama.
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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 ₹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 ₹200 from ₹185.
"We maintain add rating with a revised fair value of ₹200 ( ₹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.
Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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