Stock Recommendations: Buy Bank of Baroda (NSE: BANKBARODA) (BSE: 532134) Share CMP 252 or 248 Target Price 320——340 (Investment Call)
- Business growth momentum to pick up: The management indicated that the credit growth momentum particularly in the corporate segment was muted with BoB’s endeavour to protect margins. Pricing pressures have been visible in corporate lending and BoB was selective in pursuing growth in this segment where risk-adjusted returns were favourable. Going ahead, the management remains confident of delivering an advances growth of 12-14% in FY25. This growth will be led by continued traction in the retail advances along with pick-up in SME (boosted by budget announcements) and Agri portfolio. The management has indicated that the pipeline in the corporate segment continues to remain robust and the bank will look to accelerate growth, thereby delivering 10-12% growth as it exits FY25. The bank will look to maintain a steady business growth of 13.5% CAGR over the next 5 years. We expect continued momentum in the retail portfolio enabling the segment to outpace overall portfolio growth of ~12% CAGR.
- No major challenges on asset quality: While slippages in the SME portfolio were marginally higher QoQ, the management does not believe this to be a cause of concern. Borrower cashflows have improved post-COVID and the bank expects trends to normalise. Taking cue from the industry trends around stress build-up in the unsecured portfolio, BoB revised and tightened its filters in the personal loan segment to control slippages. The management remains confident of capping its slippages at 1-1.25% in FY25. With the visibility on incremental stress formation being low, GNPA is likely to trend downwards over FY25. Thus, the management expects credit costs to be contained at 0.75% in FY25 and does not expect any material impact of the proposed ECL norms on its existing credit cost guidance.
Sector Outlook: Positive
Company Guidance: For FY25, BoB has re-iterated its credit and deposit growth guidance of 12-14% and 10-12% respectively, thereby maintaining a steady LDR of 80-82%. Focus remains on protecting NIMs, which are expected to remain steady at 3.15% (+/-5 bps). The management remains confident of delivering a sustainable RoA/RoE of 1.1%/15-16%.
Current Valuation:1.2x FY26E ABV; Earlier Valuation:1.25x FY26E ABV
Current TP: Rs 320/share; Earlier TP: Rs 340/share
Recommendation: We maintain our BUY recommendation on the stock.
Alternative BUY Ideas from our Coverage:
HDFC Bank (TP – Rs 1,950), ICICI Bank (TP – Rs 1,425)
