Bank of Baroda Set for Upswing, Targets Rs 350: Emkay Global Financial Research
Bank of Baroda Sees Strong Credit Growth and Profit Beat
Bank of Baroda (BoB) has reported a significant acceleration in credit growth, reaching approximately 16% year-over-year (YoY). This growth, combined with a 10 basis points (bps) quarter-over-quarter (QoQ) increase in margin to approximately 2.9%, has led to a 10% profit after tax (PAT) beat, reaching Rs56 billion with a return on assets (RoA) of 1.1%. The bank's improved financial performance can be attributed to higher interest income from tax refunds and better non-performing asset (NPA) recovery.
The bank's staff cost has also benefited from the movement in government security (G-sec) yields, contributing to the overall improvement in its financials. BoB does not foresee any immediate stress resulting from the conflict in West Asia and is expecting disbursements of over Rs120 billion under the emergency credit line guarantee scheme (ECLGS) due to strong working-capital demand. Additionally, the bank has created Rs15 billion in floating provisions in the fourth quarter (4Q) to fortify its balance sheet against potential macroeconomic shocks.
Bank of Baroda expects its overall loan growth to remain healthy in the fiscal year 2027 (FY27), although the bank anticipates some pressure on margins. To support its strong credit growth and mitigate the impact of ECL on its capital, BoB plans to raise Rs85 billion in capital. In light of this improved growth, we have fine-tuned our earnings estimates to expect the bank to deliver a healthy return on assets (RoA) of approximately 1% over the fiscal years 2027-2029 (FY27-29E).
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Recommendation
We retain our BUY recommendation and target price (TP) of Rs350, valuing the standalone bank at 1x FY28E absolute book value (ABV) and subsidiaries/investments at Rs15 per share.
| Company | Credit Growth YoY | Margin QoQ | PAT Beat | RoA |
|---|---|---|---|---|
| Bank of Baroda | 16% | 10bps | 10% | 1.1% |
Note: The table above presents a comparison of Bank of Baroda's credit growth, margin, PAT beat, and RoA with other relevant data.
Investor Takeaway
Investors should expect healthy earnings growth from Bank of Baroda in the coming years.
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