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

One good reason analyst Adarsh Parasrampuria likes this stock is the outlook due to the pre-provision operating profit (PPOP) surpasses its rivals, thanks to expected improvements rolling around in its net interest margins. Nomura forecasts PPOP to grow within an average rate of roughly 13% between 2017-19.
Parasrampuria also likes the bob net banking 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 resulted in uncertainty over near-term P&L provisioning, but BOB’s NPA coverage at 58% may be the highest in the corporate banks and provides comfort, in our view. Rating agency CRISIL recently indicated a 60% haircut for these 12 large accounts, which is analogous to 60% haircut assumption utilized 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 risen, with the finance ministry indicating a prospective merger of small PSU banks with larger ones. We presume 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 implies 26% upside. The state-owned lender trades at 10 x forward earnings and pays a modest 0.8% dividend yield.
Bank of Baroda (BoB) carries a very strong provision coverage ratio in comparison to other public sector undertaking (PSU) banks. Their tier-I capital ratio is additionally significantly higher. Many other people are consolidating their balance sheet, BoB is talking about loan growth
More information about bob net banking take a look at our new resource: click to read more