Reviews

In this edition, we have reviewed Bank of Baroda and Bank of Maharashtra. We suggest our reader-investors to HOLD Bank of Baroda and Bank of Maharashtra

We had recommended Bank of Baroda in Volume 39, Issue No. 7 dated February 26, 2024 — March 10, 2024, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹275.30. We had recommended the stock based on its improved asset quality, strategic focus and continued growth. Bank of Baroda, founded in 1908 by Maharaja Sayajirao Gaekwad, is an Indian state-owned international banking and financial services company headquartered in Vadodara, Gujarat. The bank is engaged in providing various services such as personal banking, corporate banking, international banking, small and medium enterprise (SME) banking, rural banking, non-resident Indian (NRI) services and treasury services.

In Q1FY25, on a consolidated basis, the interest earned by the bank increased by 11.21 per cent YoY to ₹31,143.01 crore compared to ₹28,002.54 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 0.23 per cent. The total income increased by 7.45 per cent to ₹35,800.94 crore YoY as compared to ₹33,318.13 crore from the previous year’s same quarter, while sequentially decreasing by 4.81 per cent.

The net profit stood at ₹4,580.49 crore compared to ₹4,302.26 crore, a YoY increase of 6.47 per cent, while sequentially decreasing by 8.68 per cent from ₹5,015.96 crore. At TTM, the shares of Bank of Baroda are trading at a price-toadjusted book value of 1.06 times, which is higher compared to the industry book value of 0.90 times. The bank has a return on assets (ROA) of more than 1.19 per cent, which remains one of the best in the industry.

It has demonstrated a significant improvement in asset quality with gross NPAs declining from 3.51 per cent to 2.88 per cent and net NPAs decreasing from 0.78 per cent to 0.69 per cent. Additionally, the bank’s asset quality stability is evident from the low SMA book of 0.18 per cent and the improved collection efficiency of 99 per cent. On the strategic front, the bank has focused on reducing its dependency on wholesale deposits, shifting towards CASA deposits to enhance liquidity quality.

The bank has also indicated a strategic approach to maintain margins while optimising growth, aiming for 10 – 12 per cent deposit growth and 12 – 14 per cent advance growth in the upcoming quarters. Despite the challenges faced in the first quarter, the bank’s management has reiterated its guidance for continued growth, particularly in the corporate loans segment. Hence, we recommend HOLD.

We had recommended Bank of Maharashtra in Volume 39, Issue No. 7 dated February 26, 2024 — March 10, 2024, under the ‘Low Price’ segment. The recommended price for the stock was ₹60.36. We had recommended the stock based on its strong financial performance, robust growth, and healthy asset quality. Bank of Maharashtra (BoM), established in 1935, 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 the agricultural and SME sectors.

Its business area includes deposits, savings, loans, RTGS, dematerialisation services and credit cards. In Q1FY25, on a consolidated basis, the bank’s revenue increased by 22.68 per cent YoY to ₹5,874.68 crore compared to ₹4,788.66 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 7.46 per cent. The total income of the bank increased by 24.93 per cent to ₹6,768.76 crore YoY as compared to ₹5,417.87 crore from the previous year’s same quarter, while sequentially increasing by 4.32 per cent.

The net profit stood at ₹1,293.68 crore compared to ₹882.49 crore, a YoY increase of 46.59 per cent, while sequentially increasing by 6.22 per cent from ₹1,217.91 crore. At TTM, the shares of Bank of Maharashtra are trading at a price-to-adjusted book value of 1.93 times, which is higher compared to the industry book value of 0.89 times. The bank has a return on assets (ROA) of more than 1.42 per cent, which remains one of the best in the industry. It has demonstrated strong growth in its advances, with a 19 per cent year-on-year increase.

This was driven by high double-digit growth in the RAM segment and continued growth in retail, agriculture and MSME segments. The corporate book also experienced substantial growth, expanding by 39 per cent year-on-year. The bank has maintained healthy levels of GNPA and NNPA, with a comfortable PCR of 98.36 per cent. Additionally, the CD ratio has improved to 78.17 per cent. The bank has outlined its guidance for various key financial metrics, including total business growth, advances, deposits, NIM, non-interest income, cost to income ratio, ROA, GNPA, NNPA and CRAR. The credit cost is expected to be around 1 per cent. The bank remains committed to sustainable growth and is strengthening its risk and governance structures. Hence, we recommend HOLD.