Why Bank of Baroda is a good investment bet | Economic Times

Bank of Baroda (BoB) has been in the midst of turmoil for the last few years. Issues due to its merger with Vijaya Bank and Dena Bank are reasonably settled now. International operations was another sour point for BoB and management has taken steps to streamline that as well.After dealing with the historical stress in its corporate book, BoB has started reporting improved asset quality now. For instance, its slippage for 2020-21 was only 2.9%, lower than the market expectation; mostly because of lower slippage from corporate and international segments. The restructuring for the year was also lower than what had been projected earlier. Due to lower new slippages and the resultant lower provisions, BoB is expected to report better numbers in coming years and this should result in its return on assets (RoA) going up by 60-70 basis points.Analysts’ viewsBuy: 25Sell: 3Hold: 7Low credit pick up, due to economic disturbances triggered by the second wave of covid, is one of the issues facing the banking sector. However, the situation has started improving on the ground due to subsiding second wave and increased pace of vaccination. Analysts are hopeful that the economic revival and the resultant credit pick up will happen from the coming festival season. Since the stressed accounts are already dealt with, management focus will shift back to loan growth and therefore, BoB is one of the banks that will benefit from this. 84703150 84703158Since banks are not competing to raise fixed deposits now, money continues to accumulate in current and savings accounts (Casa) of PSU banks and strong private sector banks. For instance, BoB’s domestic Casa ratio reported a y-o-y improvement of 213 basis points in the fourth quarter and will help it to bring down its cost of funds further. Consolidation of international operations is another factor that will help BoB to improve its net interest margin (NIM).Good numbers expected for the first quarter of 2021-22 is another positive factor for the counter. While the y-o-y numbers will be good for all banks, BoB’s q-o-q numbers will also be good because of large interest income reversals in the fourth quarter of 2020-21. Its first quarter net interest income is expected to report y-o-y and q-o-q growth of 16% and 11% respectively. Since it has made big provision in fourth quarter of 2020-21, provision figure for the first quarter is also expected to be lower than the fourth quarter. Its shift to the new tax regime and the resultant lower tax rate is another factor that will enhance earnings.Selection methodology:We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.