Bank of India :: 2QFY11 – in-line with our expectation:: IIFL

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2QFY11 – in-line with our expectation
Bank of India’s (BOI) 2QFY11 net profit increased by 91%, in-line
with our estimates, but 10% below consensus estimates. In line with
our expectation, profit growth was driven by a YoY decline in loan
loss provisions (LLP) and lower tax rate. The key positive surprise in
the results was robust growth in fee income; negative surprise was a
sequential decline in NIM by 12bps. Going forward, we expect the
current trend to sustain momentum in 2HFY11. However, we believe
current market expectations factors in the medium-term earnings
prospects of the bank. We retain REDUCE.
2QFY11 results – in-line with our expectation: BOI’s 2QFY11 net
profit increased by 91%, in-line with our expectation, but 10% below
consensus estimates. Profit growth was driven by lower LLP and tax rate;
revenue growth was muted. The key positive surprise included a robust
growth in fee income, which is a significant change vis-à-vis the
performance in 1QFY11. The negative surprise was a sequential decline
in NIM by 12bps. Asset quality continued to improve, in-line with our
expectation.
No upside to our current expectation based on 2QFY11 results:
We expect the trend in performance witnessed in 1HFY11 to sustain
momentum in 2HFY11 as well. While there have been both positive and
negative surprises in 2QFY11, they largely cancel out each other, in our
view. New NPL accrual could decline yielding upside surprise in credit
costs, but new additions to restructured loans would likely limit upside on
this front as well.
We retain REDUCE; target price of Rs540: With no upside to our
current expectation, we keep our earnings forecast unchanged for now.
Even though the bank would continue to deliver robust performance
(37% earnings CAGR over FY10-13ii), current valuation suggests this is
priced into expectations. BOI’s return ratio and risk profile will likely
remain inferior to its larger peers such as SBI and PNB. At this juncture,
we prefer SBI and PNB over BOI.