Bank of Baroda share price targets post Q1 results suggest 25% upside for PSU bank stock

Shares of Bank of Baroda (BOB) might have fallen 8 per cent in the last one month but its share price targets post June quarter results suggests 23-25 per cent potential upside. Analysts said BOB's results were a mixed bag as healthy treasury gains and other income lifted profit but a sequential fall in margin was highest among PSU peers. While they see margin to remain muted in September quarter, they suggested share price targets as high as Rs 240. 

Motilal Oswal said healthy treasury gains offset the pressure on net interest income (NII), enabling the bank to deliver annualised return on asset (RoA) of 1.1 per cent and return of equity (RoE) of 20 per cent. Higher other income and lower opex thus drove earnings while margins witnessed a decline to 3.27 per cent, it said.

"Business growth was healthy at 21 per cent YoY, aided by strong traction across segments while CASA mix moderated. Asset quality continues to improve with net NPA at 0.78 per cent. A lower SMA book and controlled restructuring provided further comfort on asset quality. We largely maintain our earnings estimates and estimate FY25E RoA/ RoE at 1.2 per cent /16.9 per cent," it said while suggesting a target of Rs 240 on the stock.

Prabhudas Lilladher said the bank would like to maintain NIM for FY24 at FY23 levels but it is factoring in an 8 basis points decline in NIM to 3.08 per cent. MCLR repricing would be a key to upgrade in net interest margin (NIM), it said.

"Basis Q1’24 results, SBI delivered better NII/NIM and in near term SBI could outperform BOB on NIM given higher CASA and unsecured share. We slightly tweak our multiple from 1.15 times to 1.11 times but keep target price unchanged at Rs 235," the brokerage said.

The BOB management maintains its guidance of growing its loan book at 1-2 per cent higher than system growth. In the next couple of years, it expects its Corporate : retail mix to improve to 35:65 from 43:57 at present. It expects NIMs to be maintained at the present level of 3.3 per cent aided by stable deposit costs from here onwards, substantial part of re-pricing of MCLR loans pending and improving business mix.

Nirmal Bang has rolled forward its valuation estimates to June 2025, valuing the bank at 0.9 times adjusted book value. This brokerage has a target price of Rs 239 on the stock against Rs 230 earlier.

Meanwhile, BOB sounded confident of expanding the bank’s credit portfolio ahead of the banking system’s credit growth with a relatively stable margin.

But B&K Securities said the bank’s margin may remain soft in September quarter and would improve only in H2FY24 with term deposit re-pricing cycle gradually getting over.

"High treasury gains (if realised in the coming quarters) would have slightly adverse impact on investment book yield and on margins. We maintain our Hold rating on the stock with a revised target price of Rs 200 (earlier Rs 210) at 0.95 times September 2024 price to adjusted book value and Rs 7 for subsidiaries," it said

 

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