Accumulate Bank of India - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Bank of India posted a healthy set of numbers, with net profit growing by 93.0% yoy to Rs.953cr (low base due to one-off pension expenses related to retired employees), which were above our estimates on account of higher sequential rise in NIM and lower provisioning expenses than expected by us. We recommend an Accumulate rating on the stock.

NPA levels decline sequentially; NIM improves qoq: The bank's balance sheet growth was healthy during FY2012, with advances growing by 16.8% yoy and deposits growing by 6.5% yoy. On the deposits side, CASA deposits grew by rather moderate 11.2% yoy, with saving account deposits growing at a slightly better pace of 13.1% yoy. Domestic NIM of the bank improved by 43bp qoq in 4QFY2012 to 3.3% on the back of substantial interest income recognized on NPAs, which got upgraded/recovered during the quarter. The bank also received interest on income tax refund worth ~Rs.108cr during 4QFY2012. Fee income performance was robust, growing by 28.3% yoy (up 14.4% qoq), aided by higher forex income (up 27.4% yoy) and recoveries from written-off account (up 107.4% yoy). The bank's NPA levels improved during 4QFY2012, with gross and net NPA levels declining by 7.7% and 10.7% sequentially, respectively. Provisioning coverage ratio continued to remain low at 64.2% (60.9% in 3QFY2012). The bank's restructuring book increased by Rs.3,900cr during 4QFY2012 on account of SEB restructuring.

Outlook and valuation: The bank's asset quality has improved significantly during 2HFY2012, aided by lower slippages and higher recoveries. In addition, considering the improving macroeconomic outlook, we expect the bank to report a strong net profit CAGR of 23.3% over FY2012-14. At the CMP, the stock is trading at similar/higher valuations than peers such as BOB and PNB, although RoEs (even after factoring high earnings growth) are expected to reach 16.9% in FY2014, which are still lower than peers. Hence, we value Bank of India at 1.0x (at a discount to peers) to arrive at a target price of Rs.386. Our target price implies an upside of 9.4%; hence, we recommend an Accumulate rating on the stock.

Source : Equity Bulls

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