Over 100% return in 1 year! Will Q2 results give a further lift to this PSU bank?

Analysts maintained their bullish view on Bank of Baroda after the lender posted the highest ever quarterly profit in Q2 FY22 led by lower provisions and higher other income. The public sector bank had on Wednesday posted 24.38 per cent year-on-year (YoY) growth in the bottom line at Rs 2,087.85 crore for the quarter ended September 30 against Rs 1,678.60 crore in the same quarter last year.

Shares of the state-owned lender traded 0.99 per cent higher at Rs 101.65 at around 10.30 am (IST), while the benchmark BSE Sensex traded 566 points, or 1 per cent, down at 59,748 at around the same time. Overall, the scrip has advanced nearly 110 per cent in the past one year.

Brokerage B&K Securities has set a target price of Rs 125 for Bank of Baroda post Q2 results. “The bank has reported strong PAT [Profit After Tax] through in-part supported by strong treasury and recovery from write-offs. After a decent run in the past few sessions, the stock has cooled-off post the results. We expect the stock to regain its upward trajectory given favourable risk rewards,” B&K Securities said.
 
Bank of Baroda’s domestic current account and saving account (CASA) deposits grew 13.01 per cent to Rs 3.76 lakh crore, while domestic advances rose 2.99 per cent to Rs 6.23 lakh crore. Meanwhile, the bank's global advances increased 2.10 per cent YoY to Rs 7.34 lakh crore.
 
The bank's gross non-performing assets (NPA) ratio stood at 8.11 per cent during the quarter under review as against 9.14 per cent in the year-ago quarter and 8.86 per cent in the preceding June quarter. Net NPA stood at 2.83 per cent against 2.51 per cent in the year ago quarter and 3.03 per cent in the sequential quarter ended June 30.
 
“We believe the asset quality improvement journey is going on well. Slippages ex-SREI are down around 40 per cent QoQ. Overall, net slippages at 1 per cent are comparable to peers. Slippages should continue their improving trajectory going ahead well,” B&K Securities added.
 
Similarly, JP Morgan is also positive on Bank of Baroda and has set a target price of Rs 120. “Q2 net income came ahead of estimates driven by lower provisions,” the global financial services firm said. Provision and contingencies declined 2.04 per cent YoY to Rs 2,753.59 crore.
 
Motilal Oswal Financial Services also has a Buy rating on Bank of Baroda with a target of Rs 130. “The management expects the growth momentum to continue, led by the retail segment, while the corporate book continues to see a gradual recovery. The bank reported an improvement in asset quality. We increase our FY22E and FY23E earnings estimate sharply by 39 per cent and 14 per cent, respectively, and expect an RoA and RoE of 0.7 per cent and 10.9 per cent, respectively, by FY23E,” the brokerage added.

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