Bank of India - Centrum

Other income drives 20% beat

BoI's Q3FY12 performance came in above our expectations led by strong fx gains and lower operating expenditure, which collectively absorbed higher than estimated provisioning costs (due to KFA & GTL). Asset quality trends were mixed with slippage rate easing, GNPA and PCR largely stable QoQ though restructured assets increased by 23% QoQ. At 1.1x FY13E Adjusted BPS, positives seem priced in leading us to maintain Hold recommendation.

- Mixed asset quality trends: Asset quality trends were mixed during Q3FY12 as 1) %GNPA improved by ~30bps QoQ to 2.74% 2) provisioning cover maintained largely stable QoQ 3) slippage rate came off materially to ~1%. On the other hand, restructured assets increased by Rs25.6bn or 23% QoQ to Rs136.7 (5.7% of loan book) with cumulative slippages from restructured assets now at 23.4%. Notably, the slippages of ~Rs5.2bn is primarily due to aviation exposure (likely KFA), which implies near absence of slippages from other sectors. We maintain our view that the restructured assets are likely to rise further in quarters ahead led by stressed sectors (infrastructure, SEBs etc).

- NIM expands QoQ: The marginally above expected NII performance (up 4% vs flattish expectations) was driven by an 11bps QoQ expansion in NIM and a healthy 24% loan book growth. The bank has shifted a part of its international book in favour of ECBs vs trade finance earlier, resulting in 30bps qoq expansion in yields.

- Credit growth witnessed strong revival: Loan growth came in at 24% YoY and 11.7% QoQ (helped by rupee depreciation), well ahead of industry average growth. Importantly, the domestic loan book growth was tepid at ~8% (though strong growth in retail) while the international book grew by 67% YoY(~45% ex rupee depreciation effect). From segmental perspective, retail segment lead the loan book growth.

- Strong recoveries supported non-Interest income: Non-interest income at Rs8.5bn, up 31.5% YoY – was a positive surprise. Importantly, the strong growth was led by doubling of recoveries QoQ. Forex related revenue streams grea by a weak at 5% YoY – in contrast to the trend seen for most banks this earnings season.

- Positives priced in: We have tweaked our earnings estimates to factor in incremental trends and additional information. Broadly, while the asset quality during Q3FY12 has shown improvement, we believe that credit costs will continue to remain a challenge considering challenging operating environment. In turn, this shall act as a major impediment in reviving RoA above 0.7%. At current market price of Rs353, the stock trades at 6.1x FY2013E EPS and 1.1x FY2013E ABVPS. Our revised estimates imply a fair value estimate of Rs350. We maintain our Hold recommendation.

Source : Equity Bulls

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