KRChoksey is bearish on Bank of India and has recommended reduce rating on the stock with a target of Rs 390 in its July 26, 2011 research report.
“Bank of India reported dismal net profit of Rs 518 crore, down 28.6% y-o-y but 4.8% up q-oq, below our expectations. Net interest income growth moderated to single digit on account of sharp margin compression and moderation in loan growth. In the absence of one off employee related provisions, cost to income ratio improved significantly. However ex. treasury profits, operating profit remained flattish y-o-y at Rs 1,286 crore. Asset quality deteriorated with sharp accretion in NPA; GNPA rose by 20% y-o-y. Considering impending margin compression and elevated slippages in near term.”
“Net interest income grew by 5.8% y-o-y (against 48.7% y-o-y in Q4FY11) however it declined by 20% q-o-q to Rs 1,841 crore. Loan growth moderated to 21.6% y-o-y to Rs 214936 crore while blended margin came off by 75bps q-o-q to 2.19%. The bank raised its lending rates by 50bps in the quarter followed by another 50bps hike today, however, we expect pressure on margin would persist till H1FY12. We are building in 37bps margin compression in FY12 to factor rise in cost of funds and higher growth in lower yield wholesale loan book. We expect NII to grow at CAGR 11.4% over FY11-13e driven by 18.5% CAGR in loan book. Non- interest income grew at a modest pace of 12.6% y-o-y and declined by 19.8% on q-o-q basis to Rs 660 crore primarily because of subdued fee income which grew by 9.5% y-o-y to Rs 274 crore. Exchange profits pegged at Rs 147 crore while treasury gains also were healthy at Rs 110 crore. We are factoring 16% CAGR in core fee income over FY11-FY13e.”
“Operating expenses increased by 20.7% y-o-y though declined by 42.6% q-o-q to Rs 1,105 crore primarily due to the absence of one time employee related pension expenses provided for separated employees (Rs ~708 crore) in Q4FY11. Employee cost increased by 22% y-o-y to Rs 700 crore. While other operating expenses increased by 18.5% y-o-y to Rs 405 crore, down 12.6% q-o-q. As a result, cost to income ratio improved to 44.2% from 61.5% in Q4FY11. GNPA zipped up significantly by over 20% both on yo-y as well as q-o-q basis to Rs 5,791 crore, in absolute terms. It inched up 46bps q-o-q to 2.69% due to significant increase in fresh slippages, highest since Q1FY11, emanating from corporate (51% of total slippages), agriculture (25%) followed by SME and retail (~11% each). The restructure book stood at 5.2% of loans; loans amounting to Rs 933 crore (one account of Rs 525 crore in power sector) were restructured during the quarter while loans amounting to Rs 359 crore turned NPA from the restructured book (including one large account in road sector). Credit cost increased by 29bps q-o-q to 78bps in tandem with the rise in slippage ratio. Given pending proposals for restructuring of certain telecom loans, we remain cautious on the bank’s asset quality and factor in 65bps credit cost over FY12-13.”
“The bank reported net profit below ours and market expectations, disappointing on all the operating parameters- margin, growth and asset quality. The stock has underperformed the market and sector benchmarks and currently quoting at 1.1x P/ABV on FY13e book and 6.3x FY13e earnings. Considering sharp margin compression, volatility in asset quality trends and growth moderation and downward revision earnings, we have downgraded the stock from Hold to Reduce with a target price of Rs 390,” says KRChoksey research report.
“Bank of India reported dismal net profit of Rs 518 crore, down 28.6% y-o-y but 4.8% up q-oq, below our expectations. Net interest income growth moderated to single digit on account of sharp margin compression and moderation in loan growth. In the absence of one off employee related provisions, cost to income ratio improved significantly. However ex. treasury profits, operating profit remained flattish y-o-y at Rs 1,286 crore. Asset quality deteriorated with sharp accretion in NPA; GNPA rose by 20% y-o-y. Considering impending margin compression and elevated slippages in near term.”
“Net interest income grew by 5.8% y-o-y (against 48.7% y-o-y in Q4FY11) however it declined by 20% q-o-q to Rs 1,841 crore. Loan growth moderated to 21.6% y-o-y to Rs 214936 crore while blended margin came off by 75bps q-o-q to 2.19%. The bank raised its lending rates by 50bps in the quarter followed by another 50bps hike today, however, we expect pressure on margin would persist till H1FY12. We are building in 37bps margin compression in FY12 to factor rise in cost of funds and higher growth in lower yield wholesale loan book. We expect NII to grow at CAGR 11.4% over FY11-13e driven by 18.5% CAGR in loan book. Non- interest income grew at a modest pace of 12.6% y-o-y and declined by 19.8% on q-o-q basis to Rs 660 crore primarily because of subdued fee income which grew by 9.5% y-o-y to Rs 274 crore. Exchange profits pegged at Rs 147 crore while treasury gains also were healthy at Rs 110 crore. We are factoring 16% CAGR in core fee income over FY11-FY13e.”
“Operating expenses increased by 20.7% y-o-y though declined by 42.6% q-o-q to Rs 1,105 crore primarily due to the absence of one time employee related pension expenses provided for separated employees (Rs ~708 crore) in Q4FY11. Employee cost increased by 22% y-o-y to Rs 700 crore. While other operating expenses increased by 18.5% y-o-y to Rs 405 crore, down 12.6% q-o-q. As a result, cost to income ratio improved to 44.2% from 61.5% in Q4FY11. GNPA zipped up significantly by over 20% both on yo-y as well as q-o-q basis to Rs 5,791 crore, in absolute terms. It inched up 46bps q-o-q to 2.69% due to significant increase in fresh slippages, highest since Q1FY11, emanating from corporate (51% of total slippages), agriculture (25%) followed by SME and retail (~11% each). The restructure book stood at 5.2% of loans; loans amounting to Rs 933 crore (one account of Rs 525 crore in power sector) were restructured during the quarter while loans amounting to Rs 359 crore turned NPA from the restructured book (including one large account in road sector). Credit cost increased by 29bps q-o-q to 78bps in tandem with the rise in slippage ratio. Given pending proposals for restructuring of certain telecom loans, we remain cautious on the bank’s asset quality and factor in 65bps credit cost over FY12-13.”
“The bank reported net profit below ours and market expectations, disappointing on all the operating parameters- margin, growth and asset quality. The stock has underperformed the market and sector benchmarks and currently quoting at 1.1x P/ABV on FY13e book and 6.3x FY13e earnings. Considering sharp margin compression, volatility in asset quality trends and growth moderation and downward revision earnings, we have downgraded the stock from Hold to Reduce with a target price of Rs 390,” says KRChoksey research report.
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