Online Trading India

Mutual Funds

Share Market
Credit Card

This is what Nomura has rated to Bank of Baroda stocks, Pegs Target Price at Rs 200

Three key reasons for the upgrade to ‘buy’ from ‘neutral’: early stress recognition and high NPA coverage of 58% imply a lower P&L hit in FY18F from higher provisions for RBI’s identified large NPAs; the PPOP outlook is better than peers as the capital levels will not constrain growth, and unlike peers there are positive NIM catalysts for BOB in FY18F – we expect +12% ROE in FY19F; with a 17% correction in the past two months, we believe the market expectations on NPA resolutions are more realistic with BOB trading at 0.85x Mar-19F adjusted book.

We expect +10% loan growth for BOB over FY17-19F as the bank has already consolidated its loan book in the past two years and Tier-1 at ~10% is better than most peers.  Unlike most corporate bank peers, we expect BOB’s NIMs to improve as MCLR-led drags will be offset by lower interest reversals and higher domestic loan mix.

We thus expect a core PPOP CAGR of ~13% over FY17-19F. RBI’s recent directive to increase the provisioning for 12 large NPA cases led to uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% is the highest of the corporate banks and provides comfort, in our view.

Rating agency CRISIL recently indicated a 60% haircut for these 12 large accounts, which is similar to our 60% haircut assumption used to arrive at our adjusted book. M&A risks have increased, with the finance ministry indicating a potential merger of small PSU banks with larger ones.

(Visited 22 times, 1 visits today)
Share This!
Show Buttons
Hide Buttons