INSUBCONTINENT EXCLUSIVE:
Nomura India has a buy call on Bank of Baroda with a target price of Rs 190.
The current market price of Bank of Baroda is Rs 121.55.
Time
period given by global brokerage is one year when Bank of Baroda price can reach defined target
Our pro forma estimates indicate a merged company ROE of +12 per cent by FY21F
The merger will be nearly 4 per cent book-accretive to BOB and nearly 4 per cent earnings-dilutive
BOB trades at 0.65x Sep-20F book on an adjusted basis, which we believe is undemanding, hence maintain our Buy rating
We prefer corporate banks of India financials, with Axis/ICICI (AXSB IN/ICICIBC IN, Buy) as our top pick, but remain positive on
SBI/BOB.
Merged company financials: We look at merged company financials assuming coverage of 65 per cent by 1HFY20F and consolidation of
loan book for Dena and Vijaya for FY20F
We estimate ROE of nearly 10 per cent for FY20F and +12.5 per cent by FY21F for merged company vs 13-14 per cent ROEs pre-merger we expected
Given favourable merger ratio, merger will be nearly 4 per cent book-accretive for FY20/21F and nearly 4 per cent EPS-dilutive.
Risks in
we see lesser chance of a kitchen-sinking
(2)
Capital needs: Sep-18 CET-1 of merged bank is 9.1 per cent - government in its commentary has committed capital to banks undergoing
(3)
Balance sheet consolidation is possible, but we need to see how long this can last.
