Buy BOB; target of Rs 165: Geojit BNP Paribas

BOB reported 11% YoY decline in advances largely due to the bank’s conscious decision to rundown certain unprofitable advances from the balance sheet. We expect advances to decline at a CAGR of 2% over FY16-18E on the back of the bank’s conscious approach to reduce stressed accounts from loan book.

We like the bank as we expect the bank’s performance to improve significantly from hereon on the back of internal transformation process under the new management. However, we believe that all the benefits to flow gradually over next three years. As a result, we expect the bank to report RoA of 0.5% and RoE of 7.3% by FY18E and to improve further from thereon. Besides, recognition of most of the stressed accounts as NPA leaves minimal asset quality overhang for the future. At CMP of Rs150, the stock is trading at P/ABV of 1.7x and 1.4x for FY17E and FY18E, respectively. We assign BUY rating on the stock with target price of Rs165 based on 1.5x FY18E P/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.