3QFY11 Result Update on Bank of India.: IFCI research

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3QFY11 Result Update on Bank of India. We maintain our Underweight rating on the stock.

Sharp decline in slippages

Bank of India reported 61% YoY growth in net profit on back of 33% YoY growth of Rs 19.86 bn in net interest income and to 14% YoY decline in provisioning expenses to Rs 2.37 bn. Other income increased by 13.4% YoY, however, core fees income declined by 6% QoQ and increased by 12.6% YoY. Operating profits growth remained healthy at 22.9% YoY. Operating expenses increased by 33% YoY to Rs 12.46 bn on back of 35% YoY rise staff expenses. NII growth was mainly due to robust business growth of 22.7% YoY supported by advances growth of 22.8% YoY and deposits growth of 22.6% YoY. NIM improved by 28 bps YoY to 3.09%.  

·      Asset quality improved QoQ; still a long way to go: Gross NPA ratio decreased by 28 bps QoQ to 2.36% while net NPA ratio stood at 0.88% with a decline of 26 bps QoQ. Asset quality improved as gross NPAs declined by 7% QoQ to Rs 45.4 bn. Heavy decline of  41.78% QoQ was witnessed in fresh slippages as it came down to Rs 4.76 bn in 3QFY11 from Rs 8.18 bn in 2QFY11. Management indicated that this trend would continue going forward as well. Robust upgradation of accounts worth Rs 6.10 bn in 3QFY11 vis-a-vis Rs 1.15 bn in 2QFY11 aided the decline in NPAs. Textile and basic metal industries were the major contributor towards the NPA as they constituted 16.58% and 11.08% of total NPA’s respectively. BOI has reached 63.4% provision coverage ratio. However including technical write offs, the same would be 74.52%.

·      Healthy business growth: Advances grew by 22.8% YoY and 4.5% QoQ to Rs 1,928 bn mainly due to 47.17% YoY and 5% QoQ growth in corporate advances to Rs 868 bn and 16.36% YoY growth in agriculture advances. Deposits grew by 22.6% YoY and 4.8% QoQ to Rs 2,525 bn.  Incremental C-D ratio is at 73% vis -a- vis 102% in 2QFY11. CASA deposits displayed growth of 22.2% YoY and 1.8% QoQ.

Valuation & Recommendation: Bank of India 3QFY11 results were marked by lower slippages, higher upgradation and expansion in NIMs. However we do not expect similar level of upgradation of accounts going forward in view of erratic trend of slippages displayed by the bank we stay cautious.

At the CMP of Rs 464, stock is trading at 1.9x FY11E and 1.5x FY12E ABV. On P/E basis it trades at 9.1.5xFY11E and 6.7x FY12E EPS. We reiterate our Underweight rating and maintain our target price of Rs 440. We would continue to keep a watch on asset quality for few more quarters for any possible upgrades in multiple.