Bank of India - Decent Quarter - Karvy

Asset quality has surprised us positively. GNPA has eased by 34bps on a sequential basis to 3.1%, driven by lower slippages and higher prudential write-off of Rs0.8bn. Slippages was contained at 1.8% during the quarter (half of the slippages were on account of 1 large steel account) as against 4.2% during the last quarter. Credit grew at a healthy pace of 19%, whereas NIMs were compressed mainly from international segment.

Improvement in asset quality: Asset quality is again showing signs of improvement after 2 quarters of deterioration. Slippage came in lower at 1.8% as against 4.2% during last quarter. Half of the slippages were on account of 1 large steel account. Restructuring book almost remained flat at 6.6% of loan book.

Moderation in balance sheet growth: Advances grew by 18.6%, whereas, deposits grew only by 13.6%. Overseas and agriculture segment contributed to most of the incremental growth. Similarly overseas deposits grew by 28.4%, whereas growth in domestic deposit was muted at 9.8%. CASA has shown a sequential improvement of 100bps to 32.8%.

Marginal compression in NIMs: NIMs have fallen by 6bps sequentially to 2.4%. Domestic NIMs are almost flat at 2.8%, whereas international NIMs have seen a sequential compression of 10bps to 1.1% on account of higher proportion of short term credit. Management has guided overall NIMs of 2.6% mainly driven by lower cost of funds.

Outlook & Valuation

At the CMP, the stock is trading at 4.7x and 4.0x FY14E and FY15E earnings, and at 0.9x and 0.8x P/ABV FY14E and FY14E, respectively. Based on 20% discount to its historical mean valuation implying 1.0x P/ABV FY15E, we reiterate our "BUY" recommendation on Bank of India with target price of Rs. 460 per share.

Source : Equity Bulls

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