Buy Bank of Baroda; target of Rs 185: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's research report on Bank of Baroda

Higher slippages at Rs 12569 crore and thereby elevated credit cost at Rs 5768 crore, led to losses of Rs 3102 crore. Out of slippages, Rs 4274 crore was due to revised RBI norms. Majority of slippages came from corporate and MSME segment. Divergence came in at Rs 2918 crore Absolute GNPA rose ~13% QoQ to Rs 56480 crore with GNPA ratio at 12.26%, ~119 bps rise QoQ. Post recognition of stressed assets, the watchlist (including SMA accounts) was at Rs 10,039 crore. Sectoral exposure: power - Rs 2045 crore, road & EPC - Rs 2215 crore and Rs 5131 crore formed by granular accounts. Exposure to NCLT 1 & 2 cases was at Rs 10988 crore with ~55% of outstanding provision Operationally it was healthy with 11.7% YoY growth in NII, partly offset by muted treasury performance. Change in accounting policy, raising of gratuity ceiling (provided Rs 97 crore) led to higher opex Credit traction continued healthy at 12.8% YoY to Rs 422145 crore. Domestic advances grew ~18% YoY to Rs 351269 crore, driven by robust growth in retail loan at 42.4% YoY (home loan – 48% YoY).

Outlook

Operational earnings continued to remain healthy reflecting focus on operational efficiency. A renewed pick-up in growth with focus on retail segment bodes well for risk adjusted returns and capital consumption. Recognition of substantial proportion of stressed asset is seen reducing credit cost. Hence, it is positive in long run. Accordingly, we retain our target price of Rs 185, valuing the stock at 1.3x FY20E ABV. We maintain BUY. The bank’s plan to sell non-core assets (NSE & UTI AMC stake) and divestment in subsidiaries (AMC) to garner capital. Change in top management and merger with smaller/weaker banks remains key risk.

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