Bank of Baroda shares up over 100% in last one year; is this PSB stock still a buy?

Bank of Baroda is now the second public sector bank (PSB), only after SBI, to hit a market capitalization of ₹1 lakh crore.

Shares of Bank of Baroda (BoB) declined over a per cent after hitting their fresh 52-week high of ₹198.50 in trade on Thursday (June 22).

BoB stock is among the top gainers in the public sector banking space in the last one year as the stock has surged over 100 per cent against a 22 per cent gain in the equity benchmark Sensex.

Even after such strong gains, brokerage firm HDFC Securities recommends a buy on the stock with a target price of ₹214-234.

“We feel investors can buy the stock of the bank between ₹193-197 (0.9 times FY25E adjusted book value) and add more on dips to ₹169-173 price-band (0.8 times FY25E adjusted book value) for the base case fair value (target price) of ₹214 (one time FY25E adjusted book value) and for the bull case fair value of ₹234 (1.1 times FY25E adjusted book value) over the next two-three quarters,” said the brokerage firm.

HDFC Securities highlighted that BoB reported a strong set of earnings for Q4FY23 supported by improvement in net interest margins (NIMs) and lower slippages. The credit growth has also picked up. The bank’s total business crossed ₹21 lakh crore milestone for the first time and is up 17 per cent year-on-year (YoY).

HDFC Securities expects BoB to grow its loan book at 14 per cent CAGR while net interest income (NII) and net profit are expected to grow at 19 per cent and 23 per cent CAGR respectively over FY23-25E.

ROAA (return on average assets) is estimated to improve to 1.2 times in FY25E from the current one per cent in FY23P and RoE (return on equities) could rise to 18.8 per cent in FY25E from 15.3 per cent in FY23P. Asset quality trends of corporate and MSMEs will be key monitorable, HDFC Securities said.

“BoB is trading at an inexpensive valuation of 0.9 times FY25E P/ABV (price to adjusted book value ratio). In the past few months, BoB has shown a sharp run-up in line with many PSB peers, however, looking at the valuations, we believe that the steam is still left,” HDFC Securities pointed out.

The healthy fundamental factors make this stock an attractive buy for the medium to long term. But technical analysts are divided in their views. While some analysts advise booking some profit at the current juncture, some believe the stock can be bought at this juncture.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers pointed out that for the last couple of years, this counter has been in a solidly established uptrend constantly trading above all critical exponential moving averages. However, at the current juncture, the negative divergence has emerged on a daily scale where price action is making higher highs, but RSI is making lower highs.

“As we advance, we can expect some profit booking in Bank of Baroda. As of now wait and watch and avoid fresh longs,” said Patel.

View Full Image

Vaishali Parekh, Vice President of Technical Research at Prabhudas Lilladher observed that the stock has witnessed a decent spurt in the last one week and has arrived near the resistance zone of ₹198 which was the previous peak level made in December 2022.

“Some profit booking can be expected and one can wait for fresh entry at this juncture, let the price cool off to come near its near-term support zone of ₹189-190 levels and if there is consolidation with improvement in bias, one can take a fresh long position,” said Parekh.

“A decisive move past the ₹198 level shall open the gate for further targets of ₹218-220 levels and at the same time, a decisive breach below the important 50EMA (exponential moving average) level of ₹183 would negate the positive view and the stock can slip further with trend turning negative,” Parekh said.

On the other hand, Gaurav Bissa, VP of InCred Equities pointed out that Bank of Baroda had been trading in the range of ₹175-190 for the last three months but has finally come out of this consolidation and is witnessing an 18-month breakout on the weekly charts.

“The stock has seen a bullish MACD crossover on the weekly charts which signals a fresh uptrend and RSI is expected to lend a strong push to the stock price once it crosses 70 levels on the weekly charts. The stock can be bought for ₹215 level with a stop loss placed at ₹185,” said Bissa.

Read all market-related news here

Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

Updated: 22 Jun 2023, 12:48 PM IST