Bank of Baroda shares fall 2% after Q1 earnings. Why are brokerages slashing target prices?

Shares of Bank of Baroda dipped 2% to Rs 242 on the BSE on Monday after the lender reported a 72% year-on-year (YoY) drop in net profit to Rs 1,278 crore for the first quarter of FY27, absorbing a one-off exceptional item of $600 million. Multiple brokerages downgraded their ratings and slashed target prices for the stock after the earnings print.

Bank of Baroda on Friday reported that its net interest income (NII) rose 9% YoY to Rs 12,524 crore during the April-June quarter of FY27, as against Rs 11,435 crore in the year-ago period. Operating income fell slightly to Rs 15,995 crore, while operating profit dropped 1% YoY to Rs 8,127 crore.

Total provisions and contingencies rose to Rs 6,323 crore, mainly due to the exceptional item. The bank’s global advances grew 17% YoY to Rs 14.16 lakh crore, while global deposits rose 14% YoY to Rs 16.33 lakh crore. Global net interest margin stood at 2.77% for Q1 FY27, compared with 2.91% a year earlier and 2.89% in Q4 FY26. Domestic NIM stood at 2.93%. Cost of deposits declined to 4.66%, down 12 basis points sequentially and 39 basis points year-on-year.

Bank of Baroda’s asset quality improved from a year earlier, though bad loan ratios rose sequentially. Gross NPA ratio stood at 1.99% in Q1 FY27, compared with 2.28% in Q1 FY26 and 1.89% in Q4 FY26. Net NPA ratio declined to 0.50% from 0.60% a year earlier, but was higher than 0.45% in the March quarter.

JM Financial on Bank of Baroda share price

JM Financial said Bank of Baroda reported a mixed Q1 earnings print, with a 72% plunge in profit due to an exceptional charge pertaining to the NMC Health litigation settlement. Excluding this, PAT would have grown 22% YoY, translating to an RoA of 1.1%, it noted.

Operating performance was further weighed down by weak core fee income, declining 22% YoY and missing the brokerage’s estimate by 36%, although sharply lower provisions, aided by release of standard asset provisions, supported profitability, JM Financial said. It added that advances growth came as the bank consciously ran down corporate exposures.Sustaining RoA above 1% remains a key variable to monitor amid potential NIM pressure, continued reliance on recoveries and potentially higher credit costs following the upcoming ECL transition, the brokerage said. It cut its EPS estimates for FY27 by 5% and FY28 by 1% to factor in the NMC litigation charge, higher credit costs and moderation in fee income.JM Financial maintained its ‘Add’ rating on the shares of Bank of Baroda, but reduced its target price to Rs 270 apiece from Rs 290. The latest target implies a 10% upside from the previous closing price of Rs 246.45 on NSE. Also read | Bank of Baroda Q1 Results: Profit falls 72% to Rs 1,278 crore on one-off settlement hit

Motilal Oswal on Bank of Baroda share price

Motilal Oswal Financial Services said Bank of Baroda reported a muted quarter, with the one-off provision weighing on earnings. It noted that the bank expects NIMs to remain broadly in the 2.75% to 2.95% range, while cost of funds appears to have largely bottomed out, with incremental support expected from improving yields.

Business momentum was soft this quarter, with management maintaining credit growth guidance of 12% to 14% going ahead.

While there are no inherent concerns on asset quality, the brokerage expects credit costs to stay high at around 60 basis points in FY28, factoring in the ECL-related transition. It reduced earnings estimates by 18.9% for FY27 and 5.2% for FY28 due to the one-time settlement impact.

Motilal Oswal maintained its ‘Neutral’ rating but cut its target price to Rs 275, implying nearly 12% upside.

Other brokerages

Systematix Institutional Equities said that excluding the one-off item, core performance remained healthy. However, it reduced earnings estimates to factor in margin pressure and other financial factors. It cut the target price to Rs 290 from Rs 300, while maintaining a ‘Buy’ call.

Dolat Capital maintained its ‘Reduce’ rating and lowered the target price to Rs 250, implying just over 1% upside. It expects RoA to decline to 0.9% in FY28 due to lower margins and upcoming ECL provisions. Its loan growth estimate of 12% over FY27 and FY28 is also below overall banking system expectations.

Also read | NMC health settlement drags Bank of Baroda Q1 net profit down 72%

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)