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India Equity Research Reports, IPO and Stock News
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● BoI’s 4Q profit at Rs4.9 bn (-24% QoQ; 0.6% RoAs) was below
our estimate on account of high pension provision and weakerthan-
expected operating performance.
● NIMs in 4Q were slightly lower than expected at 2.9% (down 15
bp QoQ) and asset quality was weaker with NPL slippages picking
up again. While loan growth at BoI outpaced system growth (11%
QoQ in 4Q, 24% YoY), its CASA share dropped to 29% (from
32% in Dec 2010). Fee growth was also pedestrian at 6% YoY.
● Asset quality that had appeared to be stabilising in the past three
quarters after the NPL jump in FY10, disappointingly weakened
again. Slippages rose to 2.1% of loans (versus 1.1% in 3Q).
Management attributes this to year-end audits. With RBI easing
coverage norms, we maintain our credit cost forecast at 0.6-0.7%
for FY12 and FY13.
● Our FY12-13E EPS changes by 2-3% and target price reduces to
Rs439 as we assign a lower book value multiple (with likely lower
coverage levels post the easing of norms).
● With asset quality yet to stabilise and a relatively weak deposit
franchise that should keep NIMs under pressure in FY12 (we
forecast 2.7%), despite the stock at 1.3x book trading at a 15-20%
discount to peers, we maintain our NEUTRAL rating.
Weak operating performance
Loan growth during the quarter outpaced system growth at 11% YoY
(24% YoY), mainly driven by SME and agri. Management aims for
20%+ growth in FY12. Margins contracted 15 bp QoQ (slightly higher
than expected) to 2.9% on a 35 bp QoQ rise in the cost of deposits
(yield on advances was almost flat QoQ). We expect the margins to
moderate further given BoI’s higher share of wholesale deposits
(CASA dropped 330 bp QoQ to 29%). Fee income was weak (6%
YoY) and the bank expects fee growth to lag asset growth even in
FY12 with rising competition from peers. Employee expenses were up
a sharp 75% QoQ on Rs9.8 bn pension provisions. Total second
pension liability is at Rs38 bn, out of which the bank has already
provided Rs17.4 bn (bank has to provide Rs22 bn over the next four
years). FY12 cost-income should decline to 44% (from 51% in FY11).
Management intends to maintain minimum tier-I of 8.25% (currently at
8.3%) and therefore might be looking to raise capital in the near term.
Asset quality weakens
Gross slippages during the quarter were higher than expected (as at
other government banks) at 2.1% of loans (versus 1.1% in 3Q)
leading to credit costs of 0.9% (versus 0.3% in 3Q). Gross NPLs and
coverage (72% including write-offs) were almost flat QoQ.
Management has indicated that higher slippages in 4Q are seasonal
(branches are audited at the year end) and expects slippages of 1.3%
in FY12. The bank has further restructured Rs7.4 bn (0.35% of loans)
during the quarter and outstanding restructured loans are at 5.0% of
the loans. Our forecast FY12-13 credit costs are at 0.6-0.7% (BoI shall
also be a beneficiary of the easing of 70% NPL coverage norms). Our
FY12-13E EPS changes by 2-3% and target price reduces to Rs439,
as we assign a lower book value multiple (with likely lower coverage
levels post the easing of norms).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● BoI’s 4Q profit at Rs4.9 bn (-24% QoQ; 0.6% RoAs) was below
our estimate on account of high pension provision and weakerthan-
expected operating performance.
● NIMs in 4Q were slightly lower than expected at 2.9% (down 15
bp QoQ) and asset quality was weaker with NPL slippages picking
up again. While loan growth at BoI outpaced system growth (11%
QoQ in 4Q, 24% YoY), its CASA share dropped to 29% (from
32% in Dec 2010). Fee growth was also pedestrian at 6% YoY.
● Asset quality that had appeared to be stabilising in the past three
quarters after the NPL jump in FY10, disappointingly weakened
again. Slippages rose to 2.1% of loans (versus 1.1% in 3Q).
Management attributes this to year-end audits. With RBI easing
coverage norms, we maintain our credit cost forecast at 0.6-0.7%
for FY12 and FY13.
● Our FY12-13E EPS changes by 2-3% and target price reduces to
Rs439 as we assign a lower book value multiple (with likely lower
coverage levels post the easing of norms).
● With asset quality yet to stabilise and a relatively weak deposit
franchise that should keep NIMs under pressure in FY12 (we
forecast 2.7%), despite the stock at 1.3x book trading at a 15-20%
discount to peers, we maintain our NEUTRAL rating.
Weak operating performance
Loan growth during the quarter outpaced system growth at 11% YoY
(24% YoY), mainly driven by SME and agri. Management aims for
20%+ growth in FY12. Margins contracted 15 bp QoQ (slightly higher
than expected) to 2.9% on a 35 bp QoQ rise in the cost of deposits
(yield on advances was almost flat QoQ). We expect the margins to
moderate further given BoI’s higher share of wholesale deposits
(CASA dropped 330 bp QoQ to 29%). Fee income was weak (6%
YoY) and the bank expects fee growth to lag asset growth even in
FY12 with rising competition from peers. Employee expenses were up
a sharp 75% QoQ on Rs9.8 bn pension provisions. Total second
pension liability is at Rs38 bn, out of which the bank has already
provided Rs17.4 bn (bank has to provide Rs22 bn over the next four
years). FY12 cost-income should decline to 44% (from 51% in FY11).
Management intends to maintain minimum tier-I of 8.25% (currently at
8.3%) and therefore might be looking to raise capital in the near term.
Asset quality weakens
Gross slippages during the quarter were higher than expected (as at
other government banks) at 2.1% of loans (versus 1.1% in 3Q)
leading to credit costs of 0.9% (versus 0.3% in 3Q). Gross NPLs and
coverage (72% including write-offs) were almost flat QoQ.
Management has indicated that higher slippages in 4Q are seasonal
(branches are audited at the year end) and expects slippages of 1.3%
in FY12. The bank has further restructured Rs7.4 bn (0.35% of loans)
during the quarter and outstanding restructured loans are at 5.0% of
the loans. Our forecast FY12-13 credit costs are at 0.6-0.7% (BoI shall
also be a beneficiary of the easing of 70% NPL coverage norms). Our
FY12-13E EPS changes by 2-3% and target price reduces to Rs439,
as we assign a lower book value multiple (with likely lower coverage
levels post the easing of norms).
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