On Monday, JPMorgan revised its price target for Bank of Baroda (BOB:IN) to INR300.00 from the previous INR340.00, while maintaining an Overweight rating on the stock. The adjustment followed the bank's second-quarter performance, which showed a profit after tax (PAT) of Rs52.4 billion, a 23% increase year-over-year, and a return on equity (ROE) of 17%. This result was 11% higher than JPMorgan's estimate, bolstered by a greater recovery from written-off accounts.
Bank of Baroda experienced a 12% year-over-year increase in its loan book, contributing to a 7% rise in net interest income (NII). However, core pre-provision operating profit (PPOP) remained flat compared to the previous year, due to a decrease in core fee income. The bank managed to contain operating expense growth to 5% year-over-year, which helped offset the pressure from fee income.
The bank's asset quality remained robust, with net slippages holding steady at 0.5%. Nevertheless, provisioning costs were up at 0.9%, as the bank increased standard reserves and likely accelerated write-offs, with net non-performing assets (NPA) reducing to 0.6%. The bank's return on assets (ROA) for the quarter was reported at 1.3%, with a first-half average of 1.2%. JPMorgan anticipates that Bank of Baroda will maintain an ROA in the range of 1.1-1.2%, consistent with its guidance, supported by operational expense control and net credit cost management.
The bank's domestic credit-to-deposit ratio stood at 82%, which is relatively high compared to public sector peers and could impact growth; Bank of Baroda has trimmed its credit and deposit growth targets by 1%. Even so, capital levels remain solid, with a Common Equity Tier 1 (CET1) ratio improving to 13.6%, including profits and positive movements in available-for-sale (AFS) reserves.
Despite the price target reduction, JPMorgan finds the bank's valuations attractive at 0.85 times the fiscal year 2026 estimated price-to-book (P/B) and 6 times the price-to-earnings (P/E) ratio. The firm suggests that the bank's traditionally stronger second half could lead to positive revision momentum.
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