Reduce Bank of India - Target Price Rs. 310 - Dolat Capital

- Bank of India saw a reduction in fresh NPL formations in 3QFY13, however its asset quality trend has been fairly volatile over the past 12 quarters. Though there could be intermittent quarters of asset quality improvement, we believe overall asset quality pressures are likely to continue over the next few quarters.

- NIM at 2.36% is one of the lowest amongst the PSBs and we expect it to remain stable at best for FY14E. We believe that domestic CASA ratio for BOI is likely to remain around 32% and will witness improvement only once interest rates come down meaningfully.

- BOI's ROE has been low due to high fresh NPL formations and margin pressure. Despite the 23% CAGR in net profit that we expect during FY13E-15E, BOI's ROE of around 16% by FY15E is likely to be one of the lowest amongst the larger PSBs.

- We believe that unless a sustainable trend on the asset quality improvement and improvement in NIM emerges, the stock is unlikely to get re-rated. We have a reduce rating on the stock with target price of Rs. 310 based on PBR of 0.7x on our FY14E BVPS forecasts. Faster than expected improvement in asset quality is a key risk to our call.

Source : Equity Bulls

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