Bank of Baroda (BoB) and Canara Bank (CBK) continue to report healthy loan growth, improvement in asset quality, and better NIM profile with rising core PPP to average assets. Looking at cross-cycle valuations and the strength of their financial statements, brokerage and research firm Antique Stock Broking believes that there is room for upside from current levels.
“The disclosure of one large group’s exposure may have negatively impacted stock prices, but since the exposure is manageable and with the recent stake sale by the promoter group, credit risk fears should subside. We maintain BoB can deliver +0.9%– 1% and CBK can deliver +0.8–0.9% RoA and BV CAGR over FY23–25E for both entities are expected to be 14%–15%. Maintain BUY: Bank of Baroda shares at target price – 210 and Canara Bank shares at target price – 405,” the note stated.
“Lending growth rate for BoB and CBK improved to 21% YoY and 17% YoY respectively, with domestic loan growth at 16% YoY and 14% YoY. This growth was driven by corporate + overseas lending (21% YoY for BoB and 25% YoY for CBK); and former growth was also pushed by retail lending. These banks could be beneficiaries of the corporate growth cycle, and while we are positive of the cycle, we await further strength to emerge and thereby build in loan growth of 12%–14% over FY24–25E,” Antique Stock Broking added.
The brokerage expects asset quality to trend well, and while there were fears with respect to one large group exposure, the banks’ disclosures indicate that it is within manageable limits. Also the recent stake sale by the promoter group and disclosure of their repayment schedule should subside remaining concerns. From a current trend perspective, its credit cost estimates of 1%–1.1% for both entities are conservative. 
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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