Bank of India - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Bank of India posted net profit growth of 71.5% yoy to Rs.887cr, largely aided by write-back of provision on investment of Rs.136cr compared to provision of Rs.90cr in 1QFY2012. In fact growth in net interest income was limited to 11.0% (as NIMs were lower by 59bp), way below our estimates.

NIMs and Asset quality, both decline sequentially: During 1QFY2013, overall advances for the bank registered a healthy growth by 22.9% yoy. Domestic gross advances for the bank grew by 13.8% yoy (aided by strong growth in retail segment and higher corporate lending), while growth in international advances was 50.1% yoy (~30% yoy excluding positive impact of INR depreciation). On the deposits side, domestic CASA deposits grew by moderate 12.2% yoy, with saving account deposits growing at a slightly better pace of 14.4% yoy. Reported domestic CASA ratio improved by 156bp yoy to 32.0%. Domestic NIMs for the bank declined by 73bp sequentially to 2.6%, on back of interest reversal of ~Rs.170cr on Air India restructuring (~22bp impact on NIMs) and full impact of 25bp reduction in base rate. Foreign NIMs for the bank declined marginally by 5bp sequentially to 1.5%. Consequently, overall NIM declined sequentially by 59bp to 2.3%. Non-interest income performance was strong, with a growth of 34.5% yoy, aided by higher recoveries from written-off accounts (more than six times higher). During the quarter, the bank witnessed asset quality pressures, with 22bp sequential increase in both Gross and net NPA levels. PCR for the bank dipped sequentially by 332bp to 60.9%. Annualized slippage ratio came in at 2.8%, highest in the past three quarters. The management expects recoveries of 60-70% from the slippages of Rs.1,747cr during the quarter. Additionally, the bank restructured advances worth Rs.4,073cr, of which ~Rs.3,000cr were on account of restructuring of Air India. As of 1QFY2013, the outstanding restructured book for the bank (which is stated borrower-wise and without upgradation on one year of satisfactory performance) stands at Rs.20,589cr. As per the management, current restructuring pipeline is marginal.

Outlook and valuation: At CMP, the stock trades at largely similar valuations vis-à-vis peers such as BOB and PNB, although RoEs (even after factoring high earnings growth) are expected to reach ~16.5% in FY2013, which are still lower than peers. Hence, we value Bank of India at 0.9x (at 10% discount to peers) to arrive at a target price of Rs.354. This still leaves an upside of 21.6% from the CMP; hence, we recommend a Buy rating on the stock.

Source : Equity Bulls

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