Recommendation from Bank - Public Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

BANK OF MAHARASHTRA: DOING BETTER YEAR-ON-YEAR

HERE IS WHY
✓ Impressive improvement in interest earned
✓ Better initiatives than its peers
✓ Increase in net profit by more than 33 per cent

India’s banking sector is wellregulated and capitalised, with superior financial and economic conditions. Indian banks have been resilient to global downturns. The sector has introduced innovative models like payments and small finance banks, and has expanded through schemes like Pradhan Mantri Jan Dhan Yojana and post payment banks. In 2023 (till December 1, 2023), public and private banking sectors had total assets of USD 1,688.15 billion and USD 1,017.26 billion, respectively. Public sector banks accounted for 58.32 per cent of the total banking assets and over 57.48 per cent of interest income, reaching USD 102.51 billion.

The private banking sector interest income reached USD 70.07 billion. India’s digital lending market experienced a 39.5 per cent CAGR over 10 years, with a projected market size of USD 720 billion by 2030, representing 55 per cent of the total USD 1.3 trillion digital lending market opportunities. Owing to this, our low price scrip recommendation for this issue is Bank of Maharashtra (BoM). Established in 1935, BoM has the largest network of branches in Maharashtra. It offers personal banking services such as deposits,savings, loans and credit cards, as well as NRI banking products like FCNR accounts and remittance services. The bank also provides services to agricultural and SME sectors. In Q3FY24, on a consolidated basis, the interest earned by the bank increased by 25.20 per cent to ₹5,171.50 crore as compared to ₹4,130.56 crore in the same quarter previous year and sequentially increased by 2.04 per cent. The total income of the bank increased by 22.67 per cent to ₹5,851.55 crore as compared to ₹4,770.11 crore in the same quarter previous year and sequentially increased by 2.02 per cent. The operating profit of the bank increased by 27.31 per cent to ₹2,012.32 crore as compared to ₹1,580.64 crore in the same quarter the previous year and sequentially increased by 4.78 per cent.

The net profit of the bank increased by 33.59 per cent to ₹1,035.69 crore as compared to ₹ 775.25 crore in the same quarter the previous year and sequentially increased by 12.61 per cent. The gross NPAs reported at 2.04 per cent were down on YoY and QoQ basis. In Q3FY23 and Q2FY24, the bank reported gross NPAs at 2.94 per cent and 2.19 per cent, respectively. The net NPAs were at 0.22 per cent in Q3FY24, down from 0.23 per cent in Q2FY24 and 0.47 per cent in Q3FY23. BoM’s financial performance is superior to its competitors, with higher profitability, growth potential and market share. We think that the bank has better growth prospects than other banks, and its unique offerings may attract investors.

BoM is aiming for aggressive growth with an 18-20 per cent increase in advances, driven by digital transformation initiatives. The bank aims to achieve ₹5 lakh crore in business by 2024 and maintain a healthy financial profile with a CASA ratio of 50-51 per cent and a CD ratio of 76-78 per cent. Its digital transformation initiatives are preparing it for future opportunities and the bank has been demonstrating a commitment to stability and expansion. BoM trades at a premium valuation compared to its industry peers. At a trailing 12-month (TTM) price-to-book ratio of 2.64 times, it is significantly higher than the industry average of 1.26 times. Nevertheless, improving return on assets (ROA), which stood at 1.04 per cent, looks good as compared to its peers. Considering these factors, we recommend BUY.