Bank of Baroda: Latest News Concerning Banking

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Bank of Baroda (532134.IN) shares have fallen 17% over the past 2 months as investors fretted in the Indian lender’s soured loans. Nomura sees the dip like a good buying opportunity and has upgraded the second biggest government-controlled bank from neutral to purchase.


One reason analyst Adarsh Parasrampuria likes this stock is that the outlook for the pre-provision operating profit (PPOP) is preferable to its rivals, due to expected improvements in their net interest margins. Nomura forecasts PPOP to develop with an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bob login provisioning as India’s central bank cracks down non-performing assets (NPA).
RBI’s recent directive to improve the provisioning for 12 large NPA cases resulted in uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% is the highest from the corporate banks and offers comfort, as we see it. Rating agency CRISIL recently indicated a 60% haircut of those 12 large accounts, which is analogous to our 60% haircut assumption accustomed to reach our adjusted book.
However, the analyst is worried about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have increased, using the finance ministry indicating a prospective merger of small PSU banks with larger ones. We believe BOB’s valuation at 1.0x FY17F book vs. 0.5-0.6x FY17F book for smaller PSUs factors in M&A-related provisioning risks.
Parasrampuria includes a INR200 a share target price on Bank of Baroda, which implies 26% upside. The state-owned lender trades at 10 x forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) includes a very good provision coverage ratio in comparison with other public sector undertaking (PSU) banks. Their tier-I capital ratio is also significantly higher. While most other people are consolidating their balance sheet, BoB is speaking about loan growth
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