Buy Bank of Baroda; target of Rs 270: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bank of Baroda

BOB saw a good quarter; core PPoP at Rs61.2bn beat PLe by 6.5% owing to better margins and lower opex. However, fees were a miss due to moderation in unsecured loans, which may drag NIM over FY24-26E. Run-down of higher cost bulk deposits (Rs143bn) drove lower funding cost, resulting in better NIM. Full year FY24 NIM target of 3.15% is intact as management does not expect a meaningful rise in deposit cost. We expect funding cost to rise in Q4’24 since incremental LDR would reduce to accommodate credit offtake. Bank has maintained loan growth guidance of 14-16% YoY in FY24 while it aims to keep LDR at 82%.

Outlook

However, we are factoring lower loan accretion of 12%, since a higher loan growth may impact yields and raise funding cost, affecting NIM materially. We maintain our multiple at 1.1x but increase TP from Rs240 to Rs270 as we roll forward to Mar’26 ABV. Retain ‘BUY’