scorecardresearchBank of Baroda: What should you do with the stock in the long and short term?

Bank of Baroda: What should you do with the stock in the long and short term?

Updated: 12 Jan 2023, 12:43 PM IST
TL;DR.
In the last one year, Bank of Baroda has surged 97 percent against a 10 percent gain in the banking index BSE Bankex index, while the equity benchmark Sensex fell by about a percent in the same period.
Despite strong gains, brokerages are still positive about the stock for the medium to long term.

Despite strong gains, brokerages are still positive about the stock for the medium to long term.

Shares of Bank of Baroda (BoB) have been on an upward trajectory for the last two years. The stock has surged more than 400 percent from the multi-year low level of 36.05 that it hit on May 20, 2020.

Most banking stocks have clocked strong gains in the last one year and BoB has been among the toppers.

In the last one year, the stock has surged 97 percent against a 10 percent gain in the banking index BSE Bankex index, while the equity benchmark Sensex fell by about a percent in the same period.

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Bank of Baroda stock in last one year.

Despite strong gains, brokerages are still positive about the stock for the medium to long term.

Brokerage firm Prabhudas Lilladher is positive on BoB stock due to the lender's strong balance sheet and the revival in domestic corporate credit.

Prabhudas Lilladher has a buy call on the stock with a target price of 220, implying a 21 percent upside potential.

Prabhudas Lilladher highlighted in its report that domestic corporate credit is reviving as growth touched an eight-year high of over 13 percent year-on-year (YoY) and BoB would be a key beneficiary as its corporate loan share is nearly 40 percent and market share in overall advances is sizeable at 6.6 percent post-merger.

Moreover, the brokerage firm believes BoB could see an expansion in NIM (net interest margin) for one-two more quarter while private bank margins might peak in Q3FY22, due to a higher share of MCLR-linked loans.

As per the brokerage firm, as much as 53 percent of the overall book is MCLR linked for BoB against 30 percent for private banks.

Prabhudas Lilladher expects BoB's NIM to increase over FY22-23 from 2.95 percent to 3.3 percent.

"With sustained loan growth and benign asset quality environment, there could be further earnings upgrades across PSU banks," said the brokerage firm.

The stronger balance sheet is also a key factor which makes Prabhudas Lilladher positive about BoB.

"Balance sheet is stronger as GNPA (gross non-performing assets) in Q2FY23 reduced to 5.3 percent from 8.1 percent while PCR (provision coverage ratio) enhanced from 67 percent to 79 percent," said Prabhudas Lilladher.

The brokerage firm expects BoB's RoA (return on assets) to improve from 0.6 percent to 0.9 percent over FY22-25E. BoB's RoE (return on equity), as per the brokerage firm, may improve from 9.6 percent to 14.7 percent in the same period.

"We had recently raised FY23E earnings by 8 percent for BoB, however, with asset quality risks abating and a steady credit growth outlook, there is a likelihood of further earnings upgrade. Rolling forward to March 2025 ABV (adjusted book value), we raise multiple from one time to 1.1 times and maintain a target price at 220," said Prabhudas Lilladher.

Overall, long-term investors can still bet on the stock due to favourable fundamentals, however, in the short term, analysts say one can go for some profit booking.

Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers pointed out that at the current juncture, 190-200 is a historical resistance where one can see some profit booking.

"On the indicator front, monthly MACD is overstretched along with volume dropping as the price is increasing which is an anomaly according to volume spread analysis. One can book a profit between 195-200 if already bought. As of now, no fresh longs are advised," said Patel.

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Bank of Baroda tech chart

According to a MintGenie poll, an average of 32 analysts have a ‘strong buy’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.

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First Published: 12 Jan 2023, 12:43 PM IST