Bank of Baroda (532134.IN) shares have fallen 17% over the past 8 weeks as investors fretted on the Indian lender’s soured loans. Nomura sees the dip being a good buying opportunity and possesses upgraded the second biggest government-controlled bank from neutral to get.

The reason analyst Adarsh Parasrampuria likes this stock would be that the outlook for the pre-provision operating profit (PPOP) is superior to its rivals, because of expected improvements rolling around in its net interest margins. Nomura forecasts PPOP to cultivate with an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bob login provisioning as India’s central bank cracks down non-performing assets (NPA).
RBI’s recent directive to improve the provisioning for 12 large NPA cases generated uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% is the highest from the corporate banks and gives comfort, in our opinion. Rating agency CRISIL recently indicated a 60% haircut because of these 12 large accounts, which is similar to our 60% haircut assumption employed to go to our adjusted book.
However, the analyst can be involved about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have raised, together with the finance ministry indicating a possible merger of small PSU banks with larger ones. We believe BOB’s valuation at 1.0x FY17F book vs. 0.5-0.6x FY17F book for smaller PSUs factors in M&A-related provisioning risks.
Parasrampuria has a INR200 a share target price on Bank of Baroda, which means 26% upside. The state-owned lender trades at Much forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) has a very good provision coverage ratio compared to other public sector undertaking (PSU) banks. Their tier-I capital ratio can be significantly higher. While many other medication is consolidating their balance sheet, BoB is speaking about loan growth
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