Buy Bank of Baroda; target of Rs 290: Motilal Oswal

Motilal Oswal's research report on Bank of Baroda

Bank of Baroda (BOB) posted ~17% CAGR in loan growth over FY22-FY24 as it deployed excess liquidity on the balance sheet. Its CD ratio, thus, increased ~600bp over the past two years to 80.3%. With intense competition for deposits, we estimate BoB’s deposit growth to remain broadly in line with the system at ~11%. We, thus, estimate advances growth to moderate to 11.5% CAGR over FY24-FY27 led by RAM segments, thereby resulting in a slight rise in CD ratio to 81.6%. NIM is expected to remain range-bound in the near term, while potential turn in the rate-cycle will likely drive slight contraction in margins. However, opex growth is expected to moderate after a surge in FY24, allowing for sustained improvement in the cost ratios. We estimate C/I ratio to improve to ~45% by FY27. Asset quality remains robust and we estimate continued improvement in GNPA ratios with credit cost staying well within the guided range (<0.75%).

Outlook

BoB reported strong RoA expansion from 0.57% in FY22 to 1.17% in FY24. We estimate earnings to clock ~10% CAGR over FY24-FY27, while RoA remains steady at 1.1%. We reiterate BUY with a TP of INR 290 (premised on 1.1x FY26E ABV).

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