Bank of Baroda (532134.IN) shares have fallen 17% within the last 2 months as investors fretted within the Indian lender’s soured loans. Nomura sees the dip like a good buying opportunity and it has upgraded the second largest government-controlled bank from neutral to get.

The reason analyst Adarsh Parasrampuria likes this stock could be that the outlook for its pre-provision operating profit (PPOP) surpasses its rivals, as a result of expected improvements rolling around in its net interest margins. Nomura forecasts PPOP to develop at an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bobibanking provisioning as India’s central bank cracks down non-performing assets (NPA).
RBI’s recent directive to increase the provisioning for 12 large NPA cases triggered uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% could be the highest with the corporate banks and supplies comfort, as we see it. Rating agency CRISIL recently indicated a 60% haircut because of these 12 large accounts, which is analogous to your 60% haircut assumption used to arrive at our adjusted book.
However, the analyst is involved about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have gone up, with the finance ministry indicating a prospective merger of small PSU banks with larger ones. The world thinks 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 carries a INR200 a share target price on Bank of Baroda, which suggests 26% upside. The state-owned lender trades at 10 times forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) carries a strong provision coverage ratio when compared with other public sector undertaking (PSU) banks. Their tier-I capital ratio can also be significantly higher. While most other medication is consolidating their balance sheet, BoB is talking about loan growth
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