Media reports suggest that Bank of Baroda is expected to float its $1bn qualified institutional placement of shares in two to three weeks. In November, The Finance Committee of the Board approved the proposal of raising additional equity capital aggregating up to Rs6,000cr by way of a rights issue or qualified institutions placements (QIP). This move is positive for the bank, as it would provide much-needed headroom to provide for bad loans and would also help for next leg of loan growth. The stock would react positively to this news. Banks have been raising funds in the past few months to boost their capital adequacy ratio ahead of the government's recapitalization plan.
Bank of Baroda’s (BOB) earnings will likely remain subdued in the near term, due to an elevated provisioning requirement. Earnings growth should recover over the medium term, driven by gradual moderation in NPL accrual and reduced provisioning. We forecast BOB to deliver ~60% EPS CAGR over FY17-20E. The stock is trading at ~1x on FY20E P/BV. We have a positive outlook on the stock.
Bank of Baroda is currently trading at Rs171.7, down by Rs1.45 or 0.84% from its previous closing of Rs173.15 on the BSE.
The scrip opened at Rs173.85 and has touched a high and low of Rs174.9 and Rs170.4 respectively.
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