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EARNINGS REVIEW
Bank of India (BOI.BO)
Sell Equity Research
In line with expectations on core; retain Sell on relative valuation
3QFY11 results highlights
Bank of India (BOI) reported 3QFY11 PAT of Rs6.5bn (up 61% yoy), 16% below
GSe, but PBT (pre treasury and provisions) was in line (up 34% yoy). (1) NII
was 8% ahead of GSe, driven by higher NIMs at 3.09% (2.81% in 2Q) and
credit growth of 23% yoy. During the quarter, BOI benefitted from hike in
PLR/base rates, while deposits likely re-priced with a lag. We estimate stable
spreads in FY12, given increased lending to mid-corporates. (2) Non-interest
income was 15% ahead of GSe on higher recoveries from written-off loans of
Rs660mn. (3) Expenses were 19% ahead of GSe on Rs2.28bn of provisions for
pension liabilities. BOI indicated total pension liability at Rs40-45bn will be
amortized over five years. (4) (i) Total provisions were 78% higher than GSe at
c.Rs5bn on c.Rs2bn of one-off provisions on court settlements for a derivative
contract. NPL provisions were Rs1.2bn (down 57% qoq, 0.3% of avg. loans).
We have reduced our FY11E/FY12E provisions/avg. loans to 0.46%/0.4% vs.
1.1% in FY10. (ii) Restructured loans remained flat qoq at Rs103.5bn (5.5% of
loans), with incremental restructuring at Rs7.2bn (0.4% of loans). Gross NPLs
were down 7% qoq (2.4% of loans), implying impaired loans at 7.9% of total.
(iii) Slippages were Rs4.8bn, annualized ratio of 1.2% to opening loans vs.
2.2% in 2Q and 4.2% in 4QFY10. Cumulative slippage was about Rs18bn (18%-
19% of restructured, high vs. peers).
Retain Sell on valuation
We lower our FY11E/12E/13E EPS by 8%/6%/5% to Rs52.15/Rs66.16/Rs78.68
to factor in higher expenses slightly offset by lower provisions. Thus, our 12-
m CAMELOT-based price target reduces to Rs420 (from Rs455); target
multiple unchanged. We retain our Sell rating, as we believe valuations
(FY12E: 1.5X P/B; 7X P/E) fully reflect (1) the likely improvement in asset
quality given already-high slippages, (2) high growth/uptick in return ratios
from a low base. Upside risks: Higher NIMs, lower slippages
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Bank of India (BOI.BO)
Sell Equity Research
In line with expectations on core; retain Sell on relative valuation
3QFY11 results highlights
Bank of India (BOI) reported 3QFY11 PAT of Rs6.5bn (up 61% yoy), 16% below
GSe, but PBT (pre treasury and provisions) was in line (up 34% yoy). (1) NII
was 8% ahead of GSe, driven by higher NIMs at 3.09% (2.81% in 2Q) and
credit growth of 23% yoy. During the quarter, BOI benefitted from hike in
PLR/base rates, while deposits likely re-priced with a lag. We estimate stable
spreads in FY12, given increased lending to mid-corporates. (2) Non-interest
income was 15% ahead of GSe on higher recoveries from written-off loans of
Rs660mn. (3) Expenses were 19% ahead of GSe on Rs2.28bn of provisions for
pension liabilities. BOI indicated total pension liability at Rs40-45bn will be
amortized over five years. (4) (i) Total provisions were 78% higher than GSe at
c.Rs5bn on c.Rs2bn of one-off provisions on court settlements for a derivative
contract. NPL provisions were Rs1.2bn (down 57% qoq, 0.3% of avg. loans).
We have reduced our FY11E/FY12E provisions/avg. loans to 0.46%/0.4% vs.
1.1% in FY10. (ii) Restructured loans remained flat qoq at Rs103.5bn (5.5% of
loans), with incremental restructuring at Rs7.2bn (0.4% of loans). Gross NPLs
were down 7% qoq (2.4% of loans), implying impaired loans at 7.9% of total.
(iii) Slippages were Rs4.8bn, annualized ratio of 1.2% to opening loans vs.
2.2% in 2Q and 4.2% in 4QFY10. Cumulative slippage was about Rs18bn (18%-
19% of restructured, high vs. peers).
Retain Sell on valuation
We lower our FY11E/12E/13E EPS by 8%/6%/5% to Rs52.15/Rs66.16/Rs78.68
to factor in higher expenses slightly offset by lower provisions. Thus, our 12-
m CAMELOT-based price target reduces to Rs420 (from Rs455); target
multiple unchanged. We retain our Sell rating, as we believe valuations
(FY12E: 1.5X P/B; 7X P/E) fully reflect (1) the likely improvement in asset
quality given already-high slippages, (2) high growth/uptick in return ratios
from a low base. Upside risks: Higher NIMs, lower slippages
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