Bank of Baroda (532134.IN) shares have fallen 17% over the past 2 months as investors fretted on the Indian lender’s soured loans. Nomura sees the dip being a good buying opportunity and contains upgraded the second largest government-controlled bank from neutral to buy.

A good reason analyst Adarsh Parasrampuria likes this stock could be that the outlook for the pre-provision operating profit (PPOP) is preferable to its rivals, due to expected improvements in its net interest margins. Nomura forecasts PPOP growing within 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 improve the provisioning for 12 large NPA cases generated uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% may be the highest from the corporate banks and provides comfort, in our opinion. Rating agency CRISIL recently indicated a 60% haircut because of these 12 large accounts, which is analogous to your 60% haircut assumption utilized to arrive at our adjusted book.
However, the analyst is worried about M&A risks given government moves to consolidate smaller public sector banks (PSU):
M&A risks have risen, using the finance ministry indicating any 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 includes a INR200 a share target price on Bank of Baroda, which suggests 26% upside. The state-owned lender trades at Ten times forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) includes a strong provision coverage ratio compared to other public sector undertaking (PSU) banks. Their tier-I capital ratio is additionally significantly higher. While most other people consolidating their balance sheet, BoB is discussing loan growth
More information about bobibanking check out this resource: check here