Edelweiss downgrades BoB on earnings concerns post merger

MUMBAI: Edelweiss has downgraded Bank of Baroda to ‘reduce’ from ‘buy’ and lowered target price to Rs 113 from Rs 155 on the likelihood of weaker earnings amid merger with Vijaya Bank and Dena Bank.

We believe the proposed merger entails costs and other challenges, and will take time to be consummated. The corporate cycle is looking up, but the pace of transition and lack of visibility will overshadow these tailwinds,” said Edelweiss.

Shares of the public sector lender fell 5.6% to end at Rs 116.40 owing to weakness in the financials space. Sentiment in the financials was hit by weak results from Yes Bank and credit rating downgrade in companies belonging to the Anil Ambani Group companies to which many lenders have exposure.

The merger with Dena Bank and Vijaya Bank will take at least two-three years to consummate, if not more, the domestic brokerage said.

Continuity in management at Bank of Baroda is critical for smooth consummation of the merger, it added.

The government had announced the merger of Vijaya Bank and Dena Bank with Bank of Baroda, aiming to create the third largest lender after SBI and ICICI Bank.

“While the corporate and credit cycles are looking up and BoB has repositioned itself to exploit the opportunity, the ongoing transition and other risks would overshadow these tailwinds,” said Edelweiss.