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Bank of India
Asset quality stabilizing but increasing SME focus remains a risk: Asset quality
is stabilizing with slippages trend improving in 3Q with gross slippages coming off
to <1.0% from >2.0% before 3Q11. We had upgraded BOI on expectation of
improving asset quality and large valuations differentials which have narrowed
currently. Also management is increasing focus on SME credit which could lead to
higher slippages over the medium term.
Return ratios have normalized, capital comfortable post infusion:ROEs have
bounced back for BOI to ~19% in FY11E from <15% in FY10 as asset quality is
stabilizing and credit charges have moderated from FY10 levels. Government
infusion of Rs10bn in BOI announced recently would take capital position to
comfortable level - We estimate capital (tier-1) to remain at >9% over FY12E.
Relative out performance done: We revise FY12-13E earnings down by 7-10% as
we factor in lower margin and marginally higher credit costs and revise down our
Mar-12 PT to Rs520/share (Sep-11 PT of Rs590/share earlier) based on 2 stage
Gordon growth model implying 1.3x FY13 book. BOI has held up relatively well
over the last 3mnts and valuation gap has norrowed to 5-10% v/s peers, thus limiting
relative performance further. Asset quality risks from increasing SME focus remains
a key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India
Asset quality stabilizing but increasing SME focus remains a risk: Asset quality
is stabilizing with slippages trend improving in 3Q with gross slippages coming off
to <1.0% from >2.0% before 3Q11. We had upgraded BOI on expectation of
improving asset quality and large valuations differentials which have narrowed
currently. Also management is increasing focus on SME credit which could lead to
higher slippages over the medium term.
Return ratios have normalized, capital comfortable post infusion:ROEs have
bounced back for BOI to ~19% in FY11E from <15% in FY10 as asset quality is
stabilizing and credit charges have moderated from FY10 levels. Government
infusion of Rs10bn in BOI announced recently would take capital position to
comfortable level - We estimate capital (tier-1) to remain at >9% over FY12E.
Relative out performance done: We revise FY12-13E earnings down by 7-10% as
we factor in lower margin and marginally higher credit costs and revise down our
Mar-12 PT to Rs520/share (Sep-11 PT of Rs590/share earlier) based on 2 stage
Gordon growth model implying 1.3x FY13 book. BOI has held up relatively well
over the last 3mnts and valuation gap has norrowed to 5-10% v/s peers, thus limiting
relative performance further. Asset quality risks from increasing SME focus remains
a key risk.
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