Buy This Mid-Cap PSU Banking Stock, Stock Likely To Surge 43%, Gave 47.16% In Past 3 Months

LKP Research is bullish on bank of Baroda, a PSU Banking, and suggests buy the stock of the bank for a target price of Rs 202 apiece. It is a Midcap PSU bank with a market capitalization of Rs 73,174.77 crore. According to the brokerage’s given target price, investors buying the stock at the current market price are likely to gain 43% in 12 Months.
Stock Outlook The current market price (CMP) of the stock is Rs 141.35 apiece on NSE. Its 52-week low level is Rs 76.90 apiece recorded on 21 September 2021, and the 52-week high level is Rs 143.45 apiece, recorded on 19 September 2022, respectively. Returns on Investments Stock over the week moved up by 0.64%. Whereas, in the past 1 and 3 months, it gave has given 17.45% and 47.16% positive returns, respectively. Over the past 1 year, the stock gave 79.72% positive return and in the past 3 years it has given 40.93% positive return. In the past 5 years, it gave 2.92% negative return.   Asset Quality to improve further on the back of lower slippages and steady recoveries BOB has witnessed normalization in delinquencies post moratorium and restructuring glitches. Management guided on contained slippages during current fiscal. Moreover, as per management, steady rate of recoveries from retail and SME book will continue. However, corporate recoveries are not expected. A manageable restructuring book (₹96bn; 2.5% of book) and lower SMA pool (SMA 1/SMA 2 of 48bps and 44bps) cause no major threat to credit quality. Factoring lower slippage ratio of 1.6% in FY23E (v/s 3% in FY22), we expect the GNPA ratio to be at 6.4% and 5.9% in FY23E and FY24E respectively against 6.6% in FY22. The NNPA ratio is likely to be at 1.5% (with PCR of 76.4%) as on FY23E.  Advances are expected to grow at healthy pace with improvement in CDR The economy is witnessing healthy credit environment as the industry credit growth was 15% YoY (as per RBI latest publication). We believe, BOB shall grow at a similar pace with industry (considering a giant balance sheet) and register a credit growth of 12% in FY23E and 14% in FY24E. Nevertheless, management guided a credit growth of 12% – 13% for FY23. High margin products such as unsecured personal loans, home loans and vehicle loans to remain key focus area for the bank. The bank’s deposit is likely to grow at 11% for FY23E with improving CDR level of 74.9% v/s 74.3% in FY22. CASA ratio (44.2% in latest quarter) is at satisfactory level and we expect it to be in the same range. BOB has adequate capital cushion (CRAR: 15.5% and Tier 1 of 13%) for balance sheet growth and likely to witness no further equity dilution although, the bank may raise funds through AT-1 and Tier-2 bonds. Buy for a target price Rs 202 According to the brokerage firm, “Bank of Baroda (BOB) has been delivering strong performance across parameters. The Asset Quality is witnessing continuous improvement and standard restructuring is at manageable level. Furthermore, the credit growth remains healthy and is expected to grow at a robust pace. Lower credit cost and steady margins may result in strong profitability in FY23E and is expected to beat the guidance.We believe, inexpensive valuation (P/ABVPS: 0.8x) makes BOB lucrative and we are rerating the stock with increased target price of ₹202 (₹146 earlier).” Disclaimer The stock has been picked from the brokerage report of LKP Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.
The current market price (CMP) of the stock is Rs 141.35 apiece on NSE. Its 52-week low level is Rs 76.90 apiece recorded on 21 September 2021, and the 52-week high level is Rs 143.45 apiece, recorded on 19 September 2022, respectively.
Stock over the week moved up by 0.64%. Whereas, in the past 1 and 3 months, it gave has given 17.45% and 47.16% positive returns, respectively. Over the past 1 year, the stock gave 79.72% positive return and in the past 3 years it has given 40.93% positive return. In the past 5 years, it gave 2.92% negative return.
BOB has witnessed normalization in delinquencies post moratorium and restructuring glitches. Management guided on contained slippages during current fiscal. Moreover, as per management, steady rate of recoveries from retail and SME book will continue. However, corporate recoveries are not expected. A manageable restructuring book (₹96bn; 2.5% of book) and lower SMA pool (SMA 1/SMA 2 of 48bps and 44bps) cause no major threat to credit quality. Factoring lower slippage ratio of 1.6% in FY23E (v/s 3% in FY22), we expect the GNPA ratio to be at 6.4% and 5.9% in FY23E and FY24E respectively against 6.6% in FY22. The NNPA ratio is likely to be at 1.5% (with PCR of 76.4%) as on FY23E.
 
The economy is witnessing healthy credit environment as the industry credit growth was 15% YoY (as per RBI latest publication). We believe, BOB shall grow at a similar pace with industry (considering a giant balance sheet) and register a credit growth of 12% in FY23E and 14% in FY24E. Nevertheless, management guided a credit growth of 12% – 13% for FY23. High margin products such as unsecured personal loans, home loans and vehicle loans to remain key focus area for the bank. The bank’s deposit is likely to grow at 11% for FY23E with improving CDR level of 74.9% v/s 74.3% in FY22. CASA ratio (44.2% in latest quarter) is at satisfactory level and we expect it to be in the same range. BOB has adequate capital cushion (CRAR: 15.5% and Tier 1 of 13%) for balance sheet growth and likely to witness no further equity dilution although, the bank may raise funds through AT-1 and Tier-2 bonds.
According to the brokerage firm, “Bank of Baroda (BOB) has been delivering strong performance across parameters. The Asset Quality is witnessing continuous improvement and standard restructuring is at manageable level. Furthermore, the credit growth remains healthy and is expected to grow at a robust pace. Lower credit cost and steady margins may result in strong profitability in FY23E and is expected to beat the guidance.We believe, inexpensive valuation (P/ABVPS: 0.8x) makes BOB lucrative and we are rerating the stock with increased target price of ₹202 (₹146 earlier).”
The stock has been picked from the brokerage report of LKP Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.