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Bank of India (BoI) Q3FY11 result was strong on the account of
robust growth in net interest income by ~33% y-o-y & ~12% q-oq.
The NIMs improved to 3.1% up from 2.8% in the previous
quarter mainly on account of expansion in yield on advances by
30bps & cost of funds remaining at the same levels. CASA as a
percentage of total deposits declined by 80bps on sequential
basis. Asset quality of the bank has improved on account of
higher upgradations & lower slippages. We maintain our “BUY”
recommendation.
Robust growth in business
The business of the bank grew by a healthy ~23%, with both
deposits & advances growing ~23%. However, sequentially deposits
grew by 4.8% & advances by 4.5%. CASA grew by 22% y-o-y & by
1.8% q-o-q. However, CASA as a percentage of deposits declined by
9bps y-o-y & by 80bps q-o-q. CASA stood at 27.44% of the overall
deposits. Thus, NII of the bank grew by a healthy ~12% q-o-q. NIMs
improved by 20bps to 3.1% from 2.8% on a q-o-q basis. BoI’s growth
has been across sectors & the management has shifted its focus to
mid-corporates & SME portfolio to drive the loan growth.
Operating expenses increases due to higher provision
The operating expenses of BoI increased by ~33% y-o-y & by ~27%
q-o-q on account of ~Rs.2.28 provision made against employee
benefits. Employee expenses however increased by 38.8% on a q-oq
basis & by 35.1% on a y-o-y basis. According to the bank, a total
of Rs.40-Rs.45 bn worth of provisions is required to meet all the AS
15 related expenses towards the employees. This will be taken
over a 5 year period. Thus, the cost to income ratio of the bank
stood at 47.3% against 45.33 y-o-y & 41.56% q-o-q. BoI has also
made a provision of Rs.2.02 bn against Lehman brothers.
Asset quality improves with higher upgrades & lower slippages
BoI’s GNPA decreased by ~7% to Rs.45.4 bn from Rs.48.7 bn
sequentially. BoI’s upgradations & recovery was strong on account
of upgrade of one large account in aviation sector worth ~Rs.5.8
bn. Recovery remained strong, while slippages have reduced by
~42% sequentially. Provision expenses reduced by 13.6% y-o-y & by
5.6% q-o-q on account of improvement in asset quality. Provision
coverage ratio of BoI stood at a healthy ~75%.
Valuation: At Rs.461, the stock is available at P/BV of 1.3x of
FY12E. We maintain our “BUY” recommendation with a price
target of Rs.534 at which the bank is valued at 1.5x P/BV.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India (BoI) Q3FY11 result was strong on the account of
robust growth in net interest income by ~33% y-o-y & ~12% q-oq.
The NIMs improved to 3.1% up from 2.8% in the previous
quarter mainly on account of expansion in yield on advances by
30bps & cost of funds remaining at the same levels. CASA as a
percentage of total deposits declined by 80bps on sequential
basis. Asset quality of the bank has improved on account of
higher upgradations & lower slippages. We maintain our “BUY”
recommendation.
Robust growth in business
The business of the bank grew by a healthy ~23%, with both
deposits & advances growing ~23%. However, sequentially deposits
grew by 4.8% & advances by 4.5%. CASA grew by 22% y-o-y & by
1.8% q-o-q. However, CASA as a percentage of deposits declined by
9bps y-o-y & by 80bps q-o-q. CASA stood at 27.44% of the overall
deposits. Thus, NII of the bank grew by a healthy ~12% q-o-q. NIMs
improved by 20bps to 3.1% from 2.8% on a q-o-q basis. BoI’s growth
has been across sectors & the management has shifted its focus to
mid-corporates & SME portfolio to drive the loan growth.
Operating expenses increases due to higher provision
The operating expenses of BoI increased by ~33% y-o-y & by ~27%
q-o-q on account of ~Rs.2.28 provision made against employee
benefits. Employee expenses however increased by 38.8% on a q-oq
basis & by 35.1% on a y-o-y basis. According to the bank, a total
of Rs.40-Rs.45 bn worth of provisions is required to meet all the AS
15 related expenses towards the employees. This will be taken
over a 5 year period. Thus, the cost to income ratio of the bank
stood at 47.3% against 45.33 y-o-y & 41.56% q-o-q. BoI has also
made a provision of Rs.2.02 bn against Lehman brothers.
Asset quality improves with higher upgrades & lower slippages
BoI’s GNPA decreased by ~7% to Rs.45.4 bn from Rs.48.7 bn
sequentially. BoI’s upgradations & recovery was strong on account
of upgrade of one large account in aviation sector worth ~Rs.5.8
bn. Recovery remained strong, while slippages have reduced by
~42% sequentially. Provision expenses reduced by 13.6% y-o-y & by
5.6% q-o-q on account of improvement in asset quality. Provision
coverage ratio of BoI stood at a healthy ~75%.
Valuation: At Rs.461, the stock is available at P/BV of 1.3x of
FY12E. We maintain our “BUY” recommendation with a price
target of Rs.534 at which the bank is valued at 1.5x P/BV.
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