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Better quarters on the horizon
Credit growth expected to be 21-22% in FY11 and 22-24% in FY12.
Liquidity is not a problem with the CD ratio at 70% and the bank has sufficient liquidity to grow its loan book. It has
INR50bn of excess funds deployed in very liquid assets, which can be sold if the need arises.
CASA is at 32.5% and plans to improve the ratio to 33% by March 2011. CASA continues to remain a priority.
The bank is likely to maintain 4Q NIM at the 3Q level. However, deposit repricing in Q1 and Q2 next year may put
margins under some pressure.
Worst of asset quality issues is now firmly behind it. Credit cost is progressively decreasing and will continue to decline
for the next few quarters; now sees less sector specific issues in NPLs.
The bank has an estimated INR44bn on ad hoc basis for the second pension liability and has provided INR6.6bn in the
current fiscal year; however, actuarial valuations will be known by March 2011.
Management is comfortable with 7.5% Tier-I CAR and 12% total CAR. With the government holdings at 65%, the bank
has enough head room to raise equity capital.
Valuation and risks
After five sluggish quarters, 3Q earnings warrant taking another look at the stock, given the 20-30% underperformance to
the Sensex and Bankex since the peak in Oct 10. We value BoI at 6.7x and 1.4x 12-month rolling PE and PB, respectively
– similar to its FY12 trading multiples. We expect FY11-13e EPS CAGR at 25% with the ROE likely to improve to 22%
from 20% and ROA at 1%. We value BoI using a weighted average combination of PE (75%), PB (15%), and economic
profit model (EPM, 10%). We set our 12-month target price at INR546.
Downside risks: Worse asset quality, higher credit costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Better quarters on the horizon
Credit growth expected to be 21-22% in FY11 and 22-24% in FY12.
Liquidity is not a problem with the CD ratio at 70% and the bank has sufficient liquidity to grow its loan book. It has
INR50bn of excess funds deployed in very liquid assets, which can be sold if the need arises.
CASA is at 32.5% and plans to improve the ratio to 33% by March 2011. CASA continues to remain a priority.
The bank is likely to maintain 4Q NIM at the 3Q level. However, deposit repricing in Q1 and Q2 next year may put
margins under some pressure.
Worst of asset quality issues is now firmly behind it. Credit cost is progressively decreasing and will continue to decline
for the next few quarters; now sees less sector specific issues in NPLs.
The bank has an estimated INR44bn on ad hoc basis for the second pension liability and has provided INR6.6bn in the
current fiscal year; however, actuarial valuations will be known by March 2011.
Management is comfortable with 7.5% Tier-I CAR and 12% total CAR. With the government holdings at 65%, the bank
has enough head room to raise equity capital.
Valuation and risks
After five sluggish quarters, 3Q earnings warrant taking another look at the stock, given the 20-30% underperformance to
the Sensex and Bankex since the peak in Oct 10. We value BoI at 6.7x and 1.4x 12-month rolling PE and PB, respectively
– similar to its FY12 trading multiples. We expect FY11-13e EPS CAGR at 25% with the ROE likely to improve to 22%
from 20% and ROA at 1%. We value BoI using a weighted average combination of PE (75%), PB (15%), and economic
profit model (EPM, 10%). We set our 12-month target price at INR546.
Downside risks: Worse asset quality, higher credit costs.
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