Bank of Baroda price target raised to INR295 from INR255 at Jefferies

Jefferies has raised its price target for Bank of Baroda (BOB:IN) to INR295 from INR255, while maintaining a "Hold" rating. The bank reported a September quarter profit of Rs48 billion, an 8% year-over-year decline, which still exceeded Jefferies' estimates due to non-core income. Despite strong loan growth of 12% outpacing deposit growth of 9% and resulting in a domestic loan-to-deposit ratio of 82% (higher than peers), recovery from written-off loans was below expectations, leading Jefferies to trim FY26 estimates while raising projections for FY27 and FY28.

Analysis

Jefferies has raised its price target for Bank of Baroda (BOB:IN) to INR295 from INR255, while reiterating a "Hold" rating. The bank's September quarter profit of Rs48 billion, despite an 8% year-over-year decline, exceeded Jefferies' estimates, primarily due to a boost from non-core income sources like higher interest on tax refunds and increased treasury gains.

Loan growth of 12% significantly outpaced deposit growth of 9%, elevating the domestic Loan-to-Deposit Ratio (LDR) to 82%, a level higher than its public sector counterparts. While asset quality remained stable, the recovery from written-off loans fell short of expectations, indicating a potential area of concern for future credit costs.

Jefferies has adjusted its financial outlook, trimming estimates for fiscal year 2026 but raising projections for fiscal years 2027 and 2028. This revised guidance, coupled with the maintained "Hold" rating, suggests a near-term cautious stance balanced by a more optimistic long-term view for the bank's earnings trajectory.

Key Decisions for Investors

• Investors should monitor the sustainability of Bank of Baroda's core operating profit, given the Q3 beat was partially driven by non-core income.
• Evaluate the implications of the elevated domestic Loan-to-Deposit Ratio (82%) relative to peers, as sustained high LDR could pressure funding costs or liquidity.
• Pay close attention to future asset quality reports, particularly the trend in recovery from written-off loans, which underperformed expectations this quarter.
• Consider the long-term growth trajectory reflected in Jefferies' raised FY27/28 estimates, but acknowledge the near-term caution implied by trimmed FY26 projections and the maintained "Hold" rating.