While having a buy call on the stock, Jefferies said the bank reported decent pre-provision operating profit and NIM/NII & Fee were a beat offset by elevated costs, though asset quality disappointed in Q1.
Shares of Bank of Baroda rallied more than 4 percent intraday on July 26 after global brokerage houses remained bullish on the stock, despite cutting the price target, after the amalgamated lender turned profitable in June quarter (Q1).
According to Jefferies, the bank reported decent pre-provision operating profit and NIM/NII, though asset quality disappointed in Q1. The brokerage gas a buy call on the stock.
The public sector lender turned profitable in the June quarter after reporting net profit at Rs 710 crore post amalgamation against loss of Rs 49 crore in the year-ago quarter.
Last year, Dena Bank and Vijaya Bank were merged with Bank of Baroda.
Net interest income during the quarter grew 2.6 percent with YoY credit growth of the amalgamated entity moderated to 6.4 percent, but asset quality deteriorated further with gross non-performing assets (NPA) as a percentage of gross advances rising 26 basis points (bps) sequentially to 10.28 percent and net NPA increasing 30 bps QoQ to 3.95 percent in Q1.
The stock was quoting at Rs 112.70, up Rs 3.15, or 2.88 percent on the BSE at 1059 hours IST.
Here is what brokerages say about Bank of Baroda after Q1 earnings:
Brokerage: Jefferies | Rating: Buy | Target: Cut to Rs 130
The brokerage has a buy call on the stock as at 0.8x trailing & 0.6x forward P/b, negatives are well priced, but slashed price target to Rs 130 from Rs 150 per share.
Bank of Baroda reported decent pre-provision operating profit and NIM/NII & fee were a beat, offset by elevated costs, but asset quality disappointed.
Jefferies had anticipated Dena Bank/Vijaya Bank’s stress book to be adjusted. The Q1 built in higher provisions which should progressively improve.
Brokerage: CLSA | Rating: Buy | Target: Cut to Rs 135
CLSA also has a buy call on the stock and cut price target to Rs 135 from Rs 150 per share as bank could report a loss in FY20 but could see a recovery thereafter.
Merger dilution was higher-than-expected. Key negative was higher slippages mostly due to SME & agri loans. Watchlist of loans included exposures to DHFL & ADAG, but watchlist seems manageable at 2.6 percent of loans.
Push for synergies will be key to profitability going ahead. Bank will need to raise capital that can be dilutive.
Brokerage: Credit Suisse | Rating: Upgraded to Neutral | Target: Rs 115
The global investment firm upgraded rating on stock to neutral with a target price at Rs 115 per share and cut EPS estimates by 3-7 percent on weaker profitability.
The brokerage expects profitability to remain muted due to the merger. Quick re-rating is unlikely given expected slow growth.
In addition, the government-owned lender plans to raise Rs 6,000 crore by the end of the July-September quarter to boost capital adequacy and support growth.
