Shares of Bank of Baroda (BoB) took a 5% hit on January 31, 2025, following the bank’s disappointing Q3 results. The decline was primarily due to lower-than-expected net interest income (NII), as the net interest margin (NIM) continued to fall, leading to downward revisions in target prices by top brokerages. The market reaction comes as Jefferies and HSBC cut their target price to ₹250 per share, while Nuvama retained its “BUY” rating, albeit with a reduced target of ₹265.
Bank of Baroda’s Q3 Financial Performance: A Mixed Bag
Bank of Baroda reported a 6% year-on-year increase in its net profit, reaching ₹4,837 crore for the quarter ending December 2024, up from ₹4,579 crore in the same period last year. This was driven by an increase in non-interest income and lower provisions, but loan growth remained sluggish, and the NIM continued its downward trend. NII for the quarter missed consensus estimates, falling 2% sequentially as NIM declined due to increased funding costs.
Despite the weaker-than-expected loan growth, BoB posted stronger-than-expected profit due to treasury gains and a boost in non-interest income. However, the overall performance, particularly the NIM decline, led to cautious sentiment in the market, with brokerages adjusting their outlook on the stock.
Analyst Reactions and Target Price Revisions
Following the Q3 miss, leading brokerages have revised their target prices for BoB shares:
- Jefferies and HSBC both cut their target price to ₹250 per share, citing weak loan growth and continued margin pressure.
- Nuvama maintained its “BUY” rating but reduced its target price from ₹277 to ₹265, stating that despite the weak Q3 performance, the stock remains undervalued and could see long-term growth due to its strong return on assets (RoA) and cheap valuation.
Analysts at Nuvama pointed out that BoB’s 1%+ RoA and low price-to-book ratio (P/B) make the stock attractive for long-term investors. They expect the bank to benefit from an improved credit-to-deposit ratio and strong future deposit growth.
CEO’s Remarks on Future Outlook
Bank of Baroda’s CEO, Debadatta Chand, addressed the Q3 results, explaining that the net interest margin (NIM) is expected to range between 3% and 3.10% for the fiscal year, lower than previous estimates. This guidance indicates that the bank is facing some pressure in its interest income, but it also reflects the bank’s ability to manage costs and adapt to a changing market environment.
Chand also noted that while loan growth remains slow, BoB anticipates 9-11% growth in deposits and 11-13% growth in advances over the next fiscal year. This growth, along with repricing of deposits at lower rates, should help the bank manage margin pressures.
Key Financial Metrics for Bank of Baroda
- Net Profit: ₹4,837 crore (6% YoY growth)
- Net Interest Income (NII): Declined 2% sequentially
- Net Interest Margin (NIM): Decreased, continuing the pressure on profitability
- Non-Interest Income: Strong increase, helping to offset some of the NII weakness
- Credit-to-Deposit Ratio: Expected to stay close to 80%, with a strong focus on managing liquidity.
Stock Performance and Market Sentiment
Despite the 5% drop on January 31, Bank of Baroda shares have underperformed the broader PSU Bank Nifty Index by 3% over the past month. However, the stock’s valuation remains attractive, with a price-to-book ratio of 0.8x for FY26E, which analysts see as undervalued relative to its peers.
Currently, the stock is trading at ₹211.90 on the BSE. While this recent dip reflects short-term volatility, Bank of Baroda still maintains a solid position in the market with strong return ratios and a growing non-interest income base.
Should You Buy Bank of Baroda Shares?
For investors looking at Bank of Baroda shares, the bank’s valuation and long-term growth prospects still make it an appealing choice, especially for those with a long-term investment horizon. Despite the Q3 miss, the bank is expected to see moderate improvement in loan growth and margin stabilization in the coming quarters.
- If you’re a long-term investor, Nuvama’s “BUY” recommendation suggests that BoB’s solid financial fundamentals and growth trajectory could provide a good entry point at current levels, particularly with the stock trading at relatively low multiples compared to peers.
- Short-term investors or those concerned about NIM pressure might want to proceed cautiously, as the stock could face continued volatility in the short term. Brokerages like Jefferies and HSBC suggest that it may be prudent to wait for more clarity on the bank’s margin recovery before making new investments.
Conclusion
Bank of Baroda’s 5% drop in stock price post-Q3 results reflects investor concerns over weak NII and declining margins, but the bank’s strong non-interest income and solid profit growth offer some optimism. While some brokerages have downgraded their target price, long-term investors may still find value in the stock due to its undervalued position and strong return ratios. If you’re considering Bank of Baroda shares, closely monitor its margin performance and loan growth in the upcoming quarters for clearer insights.
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