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Buy Bank of Baroda Ltd For Target Rs.100

About the stock: Bank of Baroda is among leading PSU banks with a global loan book of ~| 7.1 lakh crore and has better operating metrics among PSBs.

* Pan-India presence with 8192 branches and 11637 ATMs

* The bank has a meaningful presence in international operations with its JVs and subsidiaries. Also, ~12.4% of total business comes from overseas.

Q1FY22 Results: BoB reported a steady operational performance.

* NII up 15.8% YoY, 11.0% QoQ; NIMs rose 32 bps QoQ 3.04%

* C/I ratio steady QoQ at 47.5%, provisions remained elevated at | 4112 crore

* Loan book down 2.7% YoY, deposits down 0.3% YoY, 3.7% QoQ

* GNPA steady at 8.86% vs. 8.87% QoQ, restructured book at 3%

What should investors do?

Bank of Baroda has seen its stock price rising by more than 70% in the past one year. We believe improving business outlook along with containment of slippages should help overall performance to improve.

* We retain our BUY rating on the stock.

Target Price and Valuation: We value the bank at ~0.75x FY23E ABV and maintain our target price of | 100 per share.

Key triggers for future price performance:

* Shedding of low yield exposure & focus on retail segment to aid margins

* Decent asset quality amid tough situation; net slippages at ~2% in FY22E

* Shift to new tax regime to aid profitability

* Comfortable capital position, CRAR at 15.4%, to keep dilution risk away.

Alternate Stock Idea: Apart from Bank of Baroda, in our coverage we also like SBI.

* SBI is the largest bank in India with a balance sheet size of over | 45 lakh crore. It also has among the best operating metrics in the PSU space

* BUY with a target price of | 540

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