We remain positive on Bank of Baroda (BOB) given: domestic corporate credit is reviving as growth touched an 8-yr high of +13 per cent YoY and BoB would be a key beneficiary as corporate loan share is about 40 per cent and market share in overall advances is sizeable at 6.6 per cent post-merger; BOB could see NIM expansion for 1-2 more quarters while private bank margins might peak in Q3FY22, due to higher share of MCLR linked loans (53 per cent vs 30 per cent for private banks); balance sheet is stronger as GNPA in Q2FY23 reduced to 5.3 per cent from 8.1 per cent while PCR enhanced from 67 per cent to 79 per cent.
We expect RoA/RoE to improve over FY22-25 from 0.6 per cent/9.6 per cent to 0.9 per cent/14.7 per cent.
We had recently raised FY23 earnings by 8 per cent for BoB, however, with asset quality risks abating and steady credit growth outlook, there is likelihood of further earnings upgrade. Within corporate, as demand is picking up and pricing power is returning, BoB would be a key beneficiary as corporate loan share is about 40 per cent. We expect credit growth to sustain for BoB and see a 13 per cent CAGR over FY23-25
Rolling forward to Mar’25 ABV, we raise multiple from 1.0x to 1.1x and maintain target price at ₹220.