Brokerage house Edelweiss has downgraded PSU bank Bank of Baroda or BoB to ‘Reduce’ from ‘Buy’ on account of earning concerns post its merger with two other PSU banks Vijaya Bank and Dena Bank.
The brokerage firm has also revised the target price of BoB downwards to Rs 113 from the earlier price of Rs155. It said as the merger involves costs and other challenges, it will take at least two to three years for the whole process to conclude.
Although the corporate cycle will revive in coming times, Edelweiss thinks the slow pace of transition and lack of visibility will likely overshadow these tailwinds. The continuity in the management is important for the completion of BoB’s merger without hassles, it noted.
Yesterday, the shares of BoB ended lower on BSE at Rs 116.40, down by 5.60% from the last close after Yes Bank released its Jan-Mar earnings. The private lender Yes Bank reported a loss of Rs 1,506 crores for the fourth quarter of FY19. Most of the banking stocks fell on the stock exchanges yesterday after the credit ratings of the financial firms of Anil Ambani group were downgraded in which many lenders have exposure.
The government announced the merger of BoB with Vijaya and Dena Bank last year in September, with a combined business of 14.82 lakh crore, making BoB the second largest PSU bank after State Bank of India.
The BoB’s merger was one of the government’s key reform initiatives to make public sector banks (PSBs) healthy, strong and globally competitive. Besides this, the government had also announced the transfer of 51% stake in IDBI Bank to Life Insurance Corporation or LIC last year as part of its reform process. Earlier in 2017, SBI was also merged with its five associate banks and Bharatiya Mahila Bank.