Buy Bank of Baroda; target of Rs 235: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bank of Baroda

BoB witnessed a healthy quarter as core PPoP at ~Rs80bn beat PLe by 8.4% largely led by better fees and TWO recovery, while asset quality was stronger as GNPA declined by 74bps QoQ to 3.8% due to lower net slippages. Exposure to the stressed airline is Rs13bn against which bank carries provision of Rs5bn while collateral cover totals to Rs10bn. ECL impact could be 1-1.5% of loans and bank would like to keep credit costs under 1% including ECL effect. Bank expects loan growth of 13-14% in FY24E and retail share could improve. Momentum in unsecured loans should continue given its low share (2%). NIM for FY23 was 3.3% and while we factor a 12bps decline in FY24 margins, there is scope for an upgrade as 1) retail share could increase 2) MCLR share is higher at 50% and 3) fixed rate loans would reprice upwards in FY24E.

Outlook

Valuation at 0.9x is attractive; maintaining multiple at 1.2x we roll forward to Mar’25 and raise TP from Rs220 to Rs235. Retain ‘BUY’.

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