Buy Bank of Baroda; target of Rs 137: SPA research

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26 Aug, 2025 12:21

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SPA research Report on Bank of BarodaBoB reported disappointing set of numbers for Q3FY16 with 64% increase in GNPA resulting into net loss of INR 33.42bn. NII declined by 17.67% YoY to INR 27.05bn due to interest reversal on higher slippages and base rate cut. NPA provisioningincreased by 5.5x YoY to INR 64.74bn as the bank took full impact of AQR and provided extra provisioning for standard assets. PCR declined to 53% from 58% in Q2FY16. On back of surge in NPAs and lower than estimated operating performance, we cut our estimates sharply and change our recommendation to HOLD from BUY with lower TP of INR 137, based on 1.5x FY17E ABV.Outlook & ValuationBoB continues its crusade against bad loans and classified loans as NPAs far in excess of that required due to AQR. Of the total slippages in Q3FY16, only 47% of slippages were due to AQR while Slippages outside AQR were INR 83.85bn much higher than last ten quarters average of INR 24bn as the bank tried to clean up the book aggressively so that it can concentrate its effort on recovery.The management has come out with strong statement that NPA ratios have peaked for the bank and it does not require capital for next 4-6 quarters as it would be raising INR 25bn from sale of non core investments. Going ahead, bank will focus on NPA recovery, increasing retail focus with thrust on improving the digital experience and shrinking its overseas trade finance book. We note that there are several challenges ahead even if impairment ratios are addressed, but the current management is forging ahead in building the bank in a refreshingly new way with focus on low risk assets. On back of surge in NPAs and lower than estimated operating performance, we cut our estimates sharply and changeour recommendation to HOLD from BUY with lower TP of INR 137, based on 1.5x FY17E ABV.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.