Bank of Baroda (532134.IN) shares have fallen 17% over the past 2 months as investors fretted in the Indian lender’s soured loans. Nomura sees the dip as being a good buying opportunity and possesses upgraded the second largest government-controlled bank from neutral to get.
One good reason analyst Adarsh Parasrampuria likes this stock is that the outlook due to the pre-provision operating profit (PPOP) is better than its rivals, due to expected improvements in its net interest margins. Nomura forecasts PPOP to grow in an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bobibanking provisioning as India’s central bank cracks down non-performing assets (NPA).
RBI’s recent directive to boost the provisioning for 12 large NPA cases generated uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% may be the highest from the corporate banks and gives comfort, as we see it. Rating agency CRISIL recently indicated a 60% haircut for these 12 large accounts, which has similarities to 60% haircut assumption employed to reach our adjusted book.
However, the analyst can be involved about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have gone up, with the finance ministry indicating any 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 has a INR200 a share target price on Bank of Baroda, which means 26% upside. The state-owned lender trades at Much forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) has a quite strong provision coverage ratio in comparison to other public sector undertaking (PSU) banks. Their tier-I capital ratio can also be significantly higher. While most other people consolidating their balance sheet, BoB is discussing loan growth
For more info about bobibanking go to our new web page: look at more info