Green shoots visible…
Bank of Baroda (BOB) is the third largest public sector bank (PSB) in India in terms of asset size and the fourth largest bank in terms of branches as of FY17. The bank has strong domestic presence with 5,451 branches and 10,136 ATM’s across the country. BOB is also known as the international bank of India as it has one of the largest branch networks in foreign countries. BOB has presence in over 27 countries with 139 overseas branches/offices, which generates close to 25% of its total business.
Valuation: The Bank’s new management is gradually reinstating confidence through major changes in operating structure which will start yielding desired outcome. Further, we also like management’s focus on cleaning up the balance sheet and laying the foundation for sustainable growth. We continue to prefer BOB among public sector banks owing to its better capital position, able management and higher provision coverage ratio. Moreover, gradual improvement in asset quality will lead to better profitability. As a result, we expect RoA and RoE to improve to 0.5% and 9%, respectively by FY19E. Hence, we continue to maintain BUY rating on the stock with a revised upwards TP of Rs200 and value the bank at P/ABV of 1.6x for FY19E.
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