Bank of Baroda: Newest News Concerning Banking

Posted on by

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


The reason analyst Adarsh Parasrampuria likes this stock is that the outlook for the pre-provision operating profit (PPOP) surpasses its rivals, due to expected improvements in the net interest margins. Nomura forecasts PPOP to develop within an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bobibanking provisioning as India’s central bank cracks down non-performing assets (NPA).
RBI’s recent directive to increase the provisioning for 12 large NPA cases resulted in uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% could be the highest in the corporate banks and offers comfort, as we see it. Rating agency CRISIL recently indicated a 60% haircut because of these 12 large accounts, which has similarities to our 60% haircut assumption accustomed to get to our adjusted book.
However, the analyst is concerned about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have raised, with the finance ministry indicating any 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 has a INR200 a share target price on Bank of Baroda, which suggests 26% upside. The state-owned lender trades at 10 times forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) has a quite strong provision coverage ratio when compared with other public sector undertaking (PSU) banks. Their tier-I capital ratio is additionally significantly higher. While many other medication is consolidating their balance sheet, BoB is talking about loan growth
More details about bobibanking browse our new web portal: click