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Bank of India
Turnaround gathers momentum
BOI delivered a good all round performance in 3QFY11. Core earnings improved
qoq and asset quality concerns appear to have receded. Going forward, the
challenging macro environment will likely cap upside earnings potential. Given
the low tier-1 capital, equity dilution appears likely in the medium term. Buy.
3QFY11: NIMs improve qoq, so does asset quality
Net interest income (NII) grew 33% yoy (12% qoq) on the back of 23% yoy loan growth
(about 5% qoq). Net interest margins (NIMs) were up 49bps yoy (28bps qoq) to 3.1%. The
improvement in qoq margins was largely led by higher yield on domestic assets as cost of
funds remained stable. Core fee income was up just 13% yoy (9.4% yoy in 9MFY11).
Treasury gains were about 7% of PBT in 3QFY11 (25% of PBT in 3QFY10). Management
estimated the total pension liability (existing + second option) to be Rs40bn-45bn (about
Rs8bn annually). The bank has already provisioned about Rs6.6bn in 9MFY11. It has also
provisioned about Rs2bn in 3QFY11 for a derivative transaction with Lehman Brothers.
Manage call it right on asset quality
Asset quality improved on qoq basis at BOI, as earlier guided by management. Gross
slippages appear to be trending down qoq (30bps of loans on a one-year lag basis in
3QFY11 vs 60bps in 2QFY11). Going forward, management expects asset quality largely to
stabilise. However, restructured loans constituted 5.4% of total, which was still higher than
the industry average of 3.5-4.0%.
Low tier-1 capital, equity dilution likely in the medium term
The reported tier-1 ratio was 7.97% as of December 2010 (8.4-8.5% including 9MFY11 net
profit). Given the underlying asset growth, we believe the bank may need to raise equity
capital in the medium term. Note, we factor no equity dilution into our estimates. The
government holds 64.5% stake in BOI as of December 2010.
Still a Buy; but upside seems limited
We have cut our estimates for FY11-12 (largely due to higher operating expenses) which
leads to a cut in our target price from Rs569 to Rs509. At our target price, the stock would
trade at 1.6x FY12F adjusted book value and 7.7x earnings.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India
Turnaround gathers momentum
BOI delivered a good all round performance in 3QFY11. Core earnings improved
qoq and asset quality concerns appear to have receded. Going forward, the
challenging macro environment will likely cap upside earnings potential. Given
the low tier-1 capital, equity dilution appears likely in the medium term. Buy.
3QFY11: NIMs improve qoq, so does asset quality
Net interest income (NII) grew 33% yoy (12% qoq) on the back of 23% yoy loan growth
(about 5% qoq). Net interest margins (NIMs) were up 49bps yoy (28bps qoq) to 3.1%. The
improvement in qoq margins was largely led by higher yield on domestic assets as cost of
funds remained stable. Core fee income was up just 13% yoy (9.4% yoy in 9MFY11).
Treasury gains were about 7% of PBT in 3QFY11 (25% of PBT in 3QFY10). Management
estimated the total pension liability (existing + second option) to be Rs40bn-45bn (about
Rs8bn annually). The bank has already provisioned about Rs6.6bn in 9MFY11. It has also
provisioned about Rs2bn in 3QFY11 for a derivative transaction with Lehman Brothers.
Manage call it right on asset quality
Asset quality improved on qoq basis at BOI, as earlier guided by management. Gross
slippages appear to be trending down qoq (30bps of loans on a one-year lag basis in
3QFY11 vs 60bps in 2QFY11). Going forward, management expects asset quality largely to
stabilise. However, restructured loans constituted 5.4% of total, which was still higher than
the industry average of 3.5-4.0%.
Low tier-1 capital, equity dilution likely in the medium term
The reported tier-1 ratio was 7.97% as of December 2010 (8.4-8.5% including 9MFY11 net
profit). Given the underlying asset growth, we believe the bank may need to raise equity
capital in the medium term. Note, we factor no equity dilution into our estimates. The
government holds 64.5% stake in BOI as of December 2010.
Still a Buy; but upside seems limited
We have cut our estimates for FY11-12 (largely due to higher operating expenses) which
leads to a cut in our target price from Rs569 to Rs509. At our target price, the stock would
trade at 1.6x FY12F adjusted book value and 7.7x earnings.
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