Bank of Baroda and SJVN: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Bank of Baroda and SJVN. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between November 4, 2024 and November 8, 2024.

Bank of Baroda

Its CMP was ₹251.35 (as on October 31, 2024) and its target price is set at ₹292 with an upside potential of 16%.

Investment Rationale

• The business of the bank has increased 10% YoY to ₹25,06,809 crore at the end of September 2024, driven by a 12% surge in advances to ₹11,43,323 crore. Deposits rose 9% to ₹13,63,486 crore at the end of September 2024.
• Advances growth was driven by retail loans rising 20% YoY to ₹2,32,311 crore at end September 2024, while credit to agriculture increased 11% to ₹1,44,508 crore and MSME 12% to ₹1,26,828 crore at end September 2024. The corporate credit moved up 10% to ₹4,35,236 crore end September 2024. The overseas credit has moved up 8% to ₹2,04,156 crore end September 2024.

• The CASA deposits of the bank increased 7% YoY to ₹4,60,316 crore at end September 2024. The current account deposits increased by 7% to ₹69,047 crore, while saving account deposits increased by 7% to ₹3,91,269 crore end September 2024.
• Net interest income (NII) increased 7.3% YoY to ₹10,831 crore during the quarter. Net interest margin (NIM) stood at 3.10% in Q2 FY25 as against 3.07% in Q2 FY24.
• The bank has continued to improve asset quality in Q2FY2025. The Gross NPA ratio improved to 2.50% in Q2 FY25 from 3.32% in Q2 FY24. Net NPA ratio stood at 0.60% as on 30 September 2024 against 0.76% as on 30 September 2023.
• The provision coverage ratio improved to 93.61% at end September 2024 compared to 93.32% a quarter ago and 93.16% a year ago. The bank has substantially raised the credit to deposit ratio to 83.9% at end September 2024 from 82.0% at end September 2023.
• CRAR of the Bank stood at 16.26% in September 2024. Tier-I stood at 14.18% (CET-1 at 12.67%, AT1 at 1.51 %) and Tier-II stood at 2.08% as of September 2024.
• Bank’s return on assets & return on equity improved to 1.30% and 19.22% respectively.

Shareholding Pattern

Promoter shareholding is highest in the Bank of Baroda at 63.97%.

Valuation

The bank has delivered significant growth in business and improvement in asset quality. Going forward, the robust economic activities and pick-up in credit growth are expected to drive the future growth of the bank. The bank is targeting loan growth of 12-14% for FY2025 with a strong pipeline of sanctions in the corporate loan book and expects the credit-to-deposit ratio to remain at 80-82%. Thus, it is expected that the stock will see a price target of ₹292 in 8 to 10 months time frame on one year average P/BV of 1.07x and FY26 (E) BVPS of ₹272.48.

Risk

• Economic slowdown
• Deterioration in asset quality

SJVN Limited

SJVN’s CMP was ₹113.55 (as on October 31, 2024) and its target price is set at ₹129 with an upside potential of 14%.

Investment Rationale

• SJVN is engaged in the business of Electricity generation. The company is also engaged in the business of providing consultancy for hydropower projects. It was declared Navaratna status in August 2024.
• It aims to be a 25,000 MW company by 2030 and a 50,000 MW company by 2040. Presently, the total project portfolio of SJVN is 56,803 MW, out of which 2,467 MW is under operation, 4,836 MW is under Construction, 16,158 MW is under Pre-construction and S&I stage and 33,342 MW capacity Projects are under allotment.

• Recently it has signed two landmark MoUs with the Government of Maharashtra for the development of Pumped Storage Projects (PSPs) and Floating Solar Projects (FSPs) in the state of Maharashtra. The first MoU was inked, for the development of five Pumped Storage Projects with a total capacity of 8100 MW, and the second MoU was signed for the development of a 505 MW Floating Solar Project at Lower Wardha Dam in Maharashtra. The total estimated investment on these projects will be to the tune of ₹48,000 crores.
• SJVN Limited, GMR Upper Karnali Hydro Power Limited, and IREDA have signed a MoU for the development of the Upper Karnali Hydro Electric Project (900 MW) through a JV Company in Nepal. SJVN and GMR would hold 34% shareholding each IREDA will have 5% and the balance would be held by the Nepal Electricity Authority. The project shall be developed on a BOOT basis with a 25 year concessional period after commissioning. The approximate project cost shall be ₹9,100 crore.
• Recently, it received CCEA approval to invest ₹5,792.36 crores to develop the 669 MW Lower Arun Hydro Electric Project (LAHEP) at a levelized tariff of ₹4.99 per unit. It would have four units of 167.25 MW each. The project is designed to generate 2,900 million units of energy annually. It bagged the project through international competitive bidding and the project is being implemented on a BOOT basis. The project shall be commissioned within a span of 60 months from the date of investment approval.
• The company has received a Letter of Intent for the allotment of the Darzo Lui Pumped Storage Project from the Government of Mizoram. It would have an installed capacity of 2,400 MW. The estimated cost of the project on completion is ₹13,947.50 crores. The project comprises eight units of 300 MW each. The annual energy generation with 95% plant availability shall be 4,993.20 MU. The project is proposed to be completed within a period of 72 months.

Shareholding Pattern

In the overall shareholding of SJVN, promoters have the highest shareholding of 81.85%.

Valuation

The company has delivered strong performance in Q1FY2025 and has floated tenders of 4.8 GW out of targeted 10.8 GW capacities in Financial Year ‘2024 and 2025. During the quarter, the revenue was up by 29%, and with improved margin the net income was up by 31%. The management of the company has reiterated that the company is moving forward to achieve its vision of installing a 25,000 MW portfolio in operation by 2030 and 50,000 MW by 2040. Thus, it is expected that the stock will see a price target of ₹129 in 8 to 10 months’ time frame on one-year average P/BV of 3.34x and FY26 BVPS of ₹38.71.

Risk

• Economic Slowdown
• Abnormal rainfall

Conclusion

These two stocks, one from the banking sector and the other from the power generation sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.