Bank of Baroda (532134.IN) shares have fallen 17% within the last 2 months as investors fretted over the Indian lender’s soured loans. Nomura sees the dip being a good buying opportunity and contains upgraded the second largest government-controlled bank from neutral to purchase.
The reason analyst Adarsh Parasrampuria likes this stock is the outlook for the pre-provision operating profit (PPOP) surpasses its rivals, thanks to expected improvements in their net interest margins. Nomura forecasts PPOP to cultivate in an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bob net banking provisioning as India’s central bank cracks down non-performing assets (NPA).
RBI’s recent directive to improve the provisioning for 12 large NPA cases resulted in uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% is the highest of the corporate banks and provides comfort, as we see it. Rating agency CRISIL recently indicated a 60% haircut of those 12 large accounts, which has similarities to our 60% haircut assumption utilized to go to our adjusted book.
However, the analyst is concerned about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have gone up, together with the finance ministry indicating a prospective merger of small PSU banks with larger ones. We believe BOB’s valuation at 1.0x FY17F book vs. 0.5-0.6x FY17F book for smaller PSUs factors in M&A-related provisioning risks.
Parasrampuria features a INR200 a share target price on Bank of Baroda, which means 26% upside. The state-owned lender trades at 10 x forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) features a very strong provision coverage ratio in comparison with other public sector undertaking (PSU) banks. Their tier-I capital ratio is additionally significantly higher. While many other people are consolidating their balance sheet, BoB is discussing loan growth
For more info about bob net banking just go to the best resource: learn here