Bank of Baroda Share Price Target at Rs 340: ICICI Direct
ICICI Securities has elevated its rating on Bank of Baroda from 'Hold' to 'BUY', setting a revised target price of Rs 340—representing an upside potential of approximately 18% from the current market price of Rs 288. The research house projects a 12-month investment horizon for this recommendation. The third-largest public sector bank, with a global loan book exceeding Rs 12.3 lakh crore, is positioned to benefit from balanced growth dynamics, margin stabilization, and exceptionally robust asset quality metrics. The upgrade reflects confidence in the bank's ability to navigate near-term challenges while capitalizing on systemic credit growth opportunities, supported by a diversified business model where international operations contribute approximately 17% of total business.
Strategic Credit Expansion Fueled by Robust Pipeline
Acceleration in H2FY26 Expected: Following subdued business momentum during the first half of FY26, Bank of Baroda is poised for accelerated credit expansion in the second half, underpinned by a formidable sanction pipeline and seasonal disbursement upticks. The bank maintains a corporate sanctioned pipeline of Rs 40,000 crore, with an additional Rs 25,000 crore currently under processing.
Diversified Growth Trajectory: ICICI Securities anticipates credit growth aligning with system-level benchmarks of 11-12% throughout FY26-28E, driven predominantly by retail, MSME, and selective corporate lending segments. The retail segment demonstrated remarkable resilience with 17.6% growth in Q2FY26, bolstered by GST reductions and the 25 basis points repo rate cut, which are expected to sustain momentum across consumer lending portfolios.
Liability Management Excellence: The bank's strategic emphasis on garnering granular liabilities remains steadfast, designed to ensure funding cost stability despite transient volatility stemming from systemic funding constraints. This approach fortifies the institution's liability profile while maintaining competitive deposit pricing dynamics.
Margin Dynamics: Navigating Compression Toward Stability
Near-Term Range-Bound Trajectory: While net interest margins experienced compression during H1FY26, analysts anticipate a stabilization pattern throughout Q3 and Q4, with comprehensive repricing benefits materializing from FY27E onwards. The margins are projected to oscillate within the 2.85-3% range for FY26E, strictly aligned with management guidance.
Structural Support Mechanisms: The margin resilience is attributable to several favorable factors including a healthy Retail, Agriculture, and MSME (RAM) mix, calibrated deposit repricing strategies, and enhanced cost efficiencies. The recent 25 basis points repo rate reduction by the Reserve Bank of India is expected to provide additional tailwinds, facilitating gradual margin recovery anticipated in FY27E as repricing advantages permeate the loan book.
Asset Quality Fortification and ECL Preparedness
Multi-Year Low in Non-Performing Assets: Bank of Baroda's asset quality metrics reflect exceptional strength, with Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) standing at 2.16% and 0.57% respectively—marking multi-year lows. This performance emanates from conservative underwriting standards and vigorous recovery mechanisms.
Proactive Provisioning Buffer: Demonstrating prudential foresight, the bank established an additional Rs 400 crore floating provision during the quarter, elevating the total buffer to Rs 1,000 crore as a safeguard preceding the Expected Credit Loss (ECL) framework implementation. Management maintains guidance parameters of GNPA below 2%, credit cost beneath 75 basis points, and slippages contained within 1-1.25%.
Consistent Recovery Momentum: The institution projects a steady recovery run-rate of Rs 700-750 crore quarterly, ensuring benign credit costs that create substantial earnings headroom while mitigating volatility across economic cycles.
Financial Performance Projections
| Parameters (Rs crore) | FY25 | FY26E | FY27E | FY28E |
|---|---|---|---|---|
| Net Interest Income | 45,658.7 | 47,214.3 | 52,969.1 | 58,520.0 |
| Operating Income | 32,434.6 | 31,693.8 | 35,218.3 | 39,034.7 |
| Net Profit | 19,581.1 | 18,731.2 | 19,683.2 | 21,778.6 |
| Earnings Per Share (Rs) | 37.8 | 36.2 | 38.0 | 42.1 |
| Book Value (Rs) | 264.5 | 301.0 | 338.0 | 377.4 |
The financial trajectory indicates a temporary moderation in net profit for FY26E (declining 4.3% year-over-year to Rs 18,731.2 crore), followed by robust recovery with 5.1% growth in FY27E and accelerating to 10.6% in FY28E.
Valuation Methodology and Investment Rationale
Rolling Over to FY28E Framework: ICICI Securities has recalibrated its valuation methodology by rolling over estimates to FY28E, assigning the bank a valuation multiple of approximately 1x FY28E Book Value. This represents a significant revision from the previous target of Rs 290 to the current Rs 340, reflecting enhanced confidence in the institution's earnings visibility.
Risk-Reward Proposition: At the current market price of Rs 288, the stock trades at a Price-to-Book Value of 1.0x (FY26E) and 0.9x (FY27E), with Price-to-Earnings multiples of 8.0x and 7.6x respectively. The Return on Equity is projected at 12.8% for FY26E, normalizing to 11.8% by FY28E, while Return on Assets remains stable at approximately 1.0%.
Key Investment Levels for Traders and Investors
Entry Point: Current Market Price at Rs 288 offers an attractive entry opportunity given the 18% upside potential to target.
Target Price: Rs 340 (12-month horizon).
Support Levels: Investors should monitor the book value progression—Rs 301 (FY26E) and Rs 338 (FY27E)—as fundamental support zones.
Risk Parameters: Key downside risks encompass elevated volatility in net interest margins and lower-than-anticipated credit growth, which could impede the projected earnings trajectory.
Operational Efficiency and Quality Metrics
Cost Management: The cost-to-income ratio is expected to moderate from 50.7% in FY26E to 50.0% by FY28E, reflecting operational leverage benefits and efficiency improvements across business verticals.
Credit-Deposit Dynamics: The credit-deposit ratio is projected to improve progressively from 83.5% in FY26E to 84.7% by FY28E, indicating superior asset deployment efficiency.
Profitability Trajectory: Net Interest Margins are estimated to stabilize at 2.7% throughout the forecast period (FY26E-FY28E), following the 2.9% achieved in FY25. The yield on average advances is anticipated to moderate from 8.2% to 7.5% as repricing dynamics equilibrate, while the average cost of deposits declines from 4.8% to 4.5%, supporting margin sustainability.
