Buy Bank of Baroda; target of Rs 48: ICICI Direct

ICICI Direct's research report on Bank of Baroda

Bank of Baroda (BoB) reported an improved performance on the operating as well as business front compared to the previous quarter. Asset quality also improved sequentially but clarity over quantum of restructuring that could take place needs to be watched. NII increased 6.8% YoY and 10.1% QoQ to Rs 7508 crore on the back of an improvement in net interest margin (NIM). NIMs during the quarter increased 31 bps QoQ to 2.86% on account of a steeper decline in cost of funds than yields. Other income jumped 54.1% QoQ to Rs 2802 crore, on account of 22.2% QoQ rise in fee income while trading gains were up 85.9% QoQ. Recovery from written-off account also improved from Rs 94 crore in the previous quarter to Rs 341 crore in Q2FY21. Provisions declined 49% QoQ as a result of lower slippages. This coupled with higher income led the bank to post a profit of Rs 1679 crore vs. loss of Rs 864 crore in the previous quarter.

Outlook

The management has guided for sustaining current margins and some improvement in loan growth, going ahead. Return ratios are still significantly low and capital raising may be in the pipeline in two quarters. However, we believe lack of clarity on restructuring part warrants slight caution as this could considerably impact overall performance. Thus, we maintain HOLD on the stock with a revised TP of Rs 48 valuing the bank at 0.4xFY22E ABV.

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