Buy Bank of Baroda; target of Rs 285: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bank of Baroda

BOB saw a mixed quarter as core PPoP was 8.7% below PLe due to lower NIM which was offset by better asset quality. NIM dropped by 16bps QoQ to 2.94% driven by (1) normalization of interest on TWO recovery that was recognized in Q2FY25 (2) tightening of credit filters (3) increase in cost of funds. Guidance on loan/deposit growth in FY25 has been maintained at 11-13% and 9-11%. Asset quality has been consistently improving; net slippages were lesser owing to controlled slippages and write-offs that resulted in lower credit costs at 40bps.

Outlook

Due to focus on better quality underwriting and lower NIM guidance, we trim NIM over FY26/27E by 9/7bps that would be neutralized by fall in provisions by 7/8bps; impact on core PAT is not material. Stock is valued at 0.9/0.8x on FY26/27 ABV (14% discount to SBI). We tweak multiple to 1.0x from 1.1x due to tough macros and cut TP to Rs285 from Rs315. Retain ‘BUY’.