Bank of Baroda shares surge nearly 5% after Q2 earnings. Should you invest?

Shares of Bank of Baroda today rallied 4.6% to their day’s high of Rs 250.55 on the BSE after the bank reported a 23.2% jump in its standalone net profit to Rs 5,238 crore for the quarter ended September 2024 as against a profit of Rs 4,253 crore in Q2FY24.

The net interest income (NII) grew by 7.3% year-on-year (YoY) to Rs 11,622 crore in Q2FY25. The significant growth in quarterly PAT was driven primarily by an increase in both NII and non-interest income.

The bank has consistently maintained a return on assets (ROA) exceeding 1%, with 1.30% for Q2FY25 and 1.20% for H1FY25. Return on equity (ROE) reached 19.22% for Q2FY25 and 17.79% for H1FY25. Operating income saw robust growth of 12% YoY in Q2FY25, driven by a 24.2% YoY surge in non-interest income.

The bank’s gross non-performing asset (NPA) ratio improved to 2.50% in Q2FY25, down from 3.32% in Q2FY24. Net NPA ratio also improved, standing at 0.60% in Q2FY25, down from 0.76% in the same quarter last year.

Should you buy, sell, or hold Bank of Baroda's stock? Here's what analysts say:

Nomura

Nomura has maintained a 'Buy' rating on Bank of Baroda, raising the target price to Rs 290 from Rs 280.

The bank has shown healthy Return on Assets (RoA) and steady asset quality, offering a sense of stability in a challenging environment. Loan growth remains strong, although there was a slight decline in core fee income. Overall, the bank’s stable asset quality adds reassurance for investors amidst broader market uncertainties.

IIFL

IIFL has maintained a 'Buy' rating but has reduced its target price to Rs 300 from Rs 310.

The management has also adjusted its business growth guidance downward by one percentage point. As a result, the company is factoring in slower growth and lower net interest margins (NIMs). Additionally, further moderation in NIMs is anticipated due to residual deposit re-pricing. Despite these changes, IIFL retains its 'Buy' recommendation, citing attractive relative valuations.

HSBC

HSBC has maintained a 'Hold' rating with a target price of Rs 270, following a better-than-expected quarter.

In Q2, high non-core income helped offset pressure from net interest margins (NIM), fee income, and ad hoc provisions, while asset quality remained stable. Looking ahead to FY25-27, the bank expects stable operating profitability; however, normalisation of credit costs is likely to impact return on assets (ROA). The outlook for earnings per share (EPS) growth remains muted.

Investec

Investec has maintained a 'Hold' rating and cut its target price to Rs 260 from Rs 280.

The bank reported a strong recovery, which aided return on assets (RoA), despite muted net interest income (NII) and higher credit costs. It expects growth buffers to be exhausted, considering the elevated loan-to-deposit ratio (LDR). Asset quality remained steady, contributing to an 8-9% earnings performance. However, weaker core pre-provision operating profit (PPOP) outcomes have driven an 8-9% downgrade in earnings forecasts.