Motilal Oswal has a buy call on Bank of Baroda, target price Rs 65

Motilal Oswal has given a buy rating to Bank of Baroda with a target price of Rs 65. The share price moved down by -0.48 per cent from its previous close of Rs 51.60. The stock’s last traded price is Rs 51.35.

Bank of Baroda reported mixed 4QFY20 operating performance as moderation in NII was supported by lower opex and higher treasury income. While elevated provisions led to PBT loss, higher tax reversal resulted in the bank reporting profits, says the brokerage. Lower slippages were aided by asset classification benefits resulting in an improvement in asset quality ratios. However, a higher moratorium book of 55 per cent (as at end-May’20) should keep asset quality under pressure, according to the brokerage.

Investment Rationale

According to the brokerage, the macro environment remains challenging due to the Covid-19 outbreak, which has impacted growth and credit quality outlook. Though Bank of Baroda has reported an improvement in asset quality ratios and provisioning coverage, it has come on account of asset classification benefits availed by the bank. Watchlist at 1.8 per cent of loans, higher SMA-1/2 book of 1.2 per cent each along with the Unrated/BB & Below book of 24 per cent remains a concern, says the brokerage.

Higher moratorium book of 55 per cent is likely to keep asset quality under pressure, and thus, the brokerage estimates credit cost to remain elevated over FY21. It has cut its EPS estimate for FY21/FY22E by 34 per cent/5 per cent. However, the brokerage maintains buy with a target price of Rs 65 (0.6 times FY22E ABV) as current valuations appear reasonable.

Source: Motilal Oswal

Financials

For the quarter ended March 31, 2020, the company reported consolidated interest income of Rs 13642.12 crore, down -2.03 per cent from last quarter Interest Income of Rs 13924.35 crore and up 43.12 per cent from last year same quarter interest income of Rs 9531.83 crore. The bank has reported net profit after tax of Rs 481.10 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 71.60 per cent stake in the company as of March 31, 2020, while FIIs held 4.57 per cent, DIIs 13.95 per cent and public and other 9.88 per cent.