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Bank of India (BOI.BO)
Sell Equity Research
Below expectations on provisions & pension costs, core muted
NII excluding tax refund lower than GSe
Bank of India (BOI) reported 4QFY11 PAT of Rs4.94bn (up 15% yoy), 34% below
GSe and 27% below Bloomberg consensus, primarily on higher NPL provisions
and pension costs. Key highlights: (1) NII adjusted for tax refund of Rs2.77bn
came in at Rs20.3 bn in 4Q , 4% below GSe as calculated NIMs declined 20bps qoq
due to steep rise in deposit costs and lower CD ratio at 71% vs 75% in 3Q. (2)
Employee costs grew 75% qoq to Rs14.6bn (+64% vs. Gse) as BOI made a
Rs9.85bn provision for pension liability in 4Q (vs. Rs6.5bn in 9MFY10). Total
pension liability is indicated at Rs7.1bn for retired employees (one-off provided for
in FY11) and Rs22 bn for existing employees (amortized over 5 yrs). (3) Total
provisions were +69% vs. GSe as NPL provisions were 1.7x higher at Rs3.4 bn (up
from 0.3% of loans in 3Q to 0.6% in 4Q), indicated due to 80% of branches
migrating to a system-driven NPL recognition system. The annualized 4Q slippage
ratio was higher qoq at 2.4% (FY11: 1.7%), and restructured loans grew 3% qoq to
Rs 106.4bn (5% of loans). Gross NPLs grew 6% qoq to 2.23%. (4) Non interest
income was 51% ahead of GSe driven by higher trading gains, while fee income
growth continued to be lackluster at (up 4% yoy), despite loans growing 26% yoy
(4% ahead of GSe).
We retain Sell on more favorable risk-reward elsewhere
While continuing to build in NIM pressure, we finetune FY12E/FY13E PAT between
2% -3% and EPS (-6% to -7%) to factor in higher expenses & provisions and thus
lower our 12-m CAMELOT TP to Rs410 (from Rs420). We introduce FY14 estimates.
We retain our Sell as we believe the risk-reward is more favorable for other PSU
banks, with BOI’s valuations (FY12E: 1.2x P/B; 6.7x P/E) reflecting (1) likely
improvement in asset quality given already-high slippage, (2) high growth/uptick in
return ratios from a low base. Upside risks: Higher NIMs, lower slippage.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India (BOI.BO)
Sell Equity Research
Below expectations on provisions & pension costs, core muted
NII excluding tax refund lower than GSe
Bank of India (BOI) reported 4QFY11 PAT of Rs4.94bn (up 15% yoy), 34% below
GSe and 27% below Bloomberg consensus, primarily on higher NPL provisions
and pension costs. Key highlights: (1) NII adjusted for tax refund of Rs2.77bn
came in at Rs20.3 bn in 4Q , 4% below GSe as calculated NIMs declined 20bps qoq
due to steep rise in deposit costs and lower CD ratio at 71% vs 75% in 3Q. (2)
Employee costs grew 75% qoq to Rs14.6bn (+64% vs. Gse) as BOI made a
Rs9.85bn provision for pension liability in 4Q (vs. Rs6.5bn in 9MFY10). Total
pension liability is indicated at Rs7.1bn for retired employees (one-off provided for
in FY11) and Rs22 bn for existing employees (amortized over 5 yrs). (3) Total
provisions were +69% vs. GSe as NPL provisions were 1.7x higher at Rs3.4 bn (up
from 0.3% of loans in 3Q to 0.6% in 4Q), indicated due to 80% of branches
migrating to a system-driven NPL recognition system. The annualized 4Q slippage
ratio was higher qoq at 2.4% (FY11: 1.7%), and restructured loans grew 3% qoq to
Rs 106.4bn (5% of loans). Gross NPLs grew 6% qoq to 2.23%. (4) Non interest
income was 51% ahead of GSe driven by higher trading gains, while fee income
growth continued to be lackluster at (up 4% yoy), despite loans growing 26% yoy
(4% ahead of GSe).
We retain Sell on more favorable risk-reward elsewhere
While continuing to build in NIM pressure, we finetune FY12E/FY13E PAT between
2% -3% and EPS (-6% to -7%) to factor in higher expenses & provisions and thus
lower our 12-m CAMELOT TP to Rs410 (from Rs420). We introduce FY14 estimates.
We retain our Sell as we believe the risk-reward is more favorable for other PSU
banks, with BOI’s valuations (FY12E: 1.2x P/B; 6.7x P/E) reflecting (1) likely
improvement in asset quality given already-high slippage, (2) high growth/uptick in
return ratios from a low base. Upside risks: Higher NIMs, lower slippage.
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