Broker's call: Bank of Baroda (Buy)

Target: ₹74

CMP: ₹ 59.05

In Q2-FY21, Bank of Baroda (BOB) has delivered a strong result on operating, assets quality as well as collection efficiencies front. Moreover, reported gross slippages declined to ₹1,520 crore v/s ₹3,000 crore in the previous quarter. Furthermore, the collection efficiencies of domestic loans (excluding Agriculture) stood 94 per cent of same quarter in previous year. It reported GNPA (9.14 per cent v/s 9.39 per cent in Q1-FY21) and NNPA (2.51 per cent v/s 2.83 per cent in Q2-FY21) declined. The bank has witnessed stable net advances (5.1 per cent y-o-y) and strong deposit growth (6.7 per cent y-o-y) with better liquidity position (LCR of 140 per cent +).

Moreover the bank has reported PAT of ₹1,680 crore (v/s loss of ₹ 860 crore in Q1-FY21) on back of healthy NII growth (6.8 per cent y-o-y and 10.1 per cent q-o-q) along with heavy provisioning expenses of ₹3,010 crore against ₹ 5,620 crore in the previous quarter.

Factoring the healthy collection efficiency, we believe the Covid provision would be adequate to absorb imminent stress. The bank may raise ₹13,500 crore in FY21 which is likely to boost the balance sheet further.

We believe the negatives are in the price and an inexpensive valuation (0.4x PBV) makes BOB an attractive Buy.