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Bank of India posted adjusted core earnings largely in line with estimates in 4QFY11. One time
staff related provisions pulled down PAT below estimates. Slippages increased on qoq basis in
4QFY11. The management guides for stable asset quality going forward.
4QFY11: Adjusted core earnings largely in line
The adjusted (net of interest on income tax refund of Rs 2.8bn in 4QFY11) net interest
income (NII) increased 31% yoy to about Rs 20.3bn in 4QFY11 (+2% qoq). The global net
interest margin (adjusted) went up 37bps yoy to 2.94% in 4QFY11 (down 15bps on qoq
basis). Domestic NIMs were up 37bps yoy to about 3.4% (down 10bps qoq) and overseas
NIMs were up 30bps yoy to 1.24% (down 20bps qoq).
Core fee income posted a muted 4% yoy growth in 4QFY11 (+8% yoy in FY11). Treasury
gains were about 17% of PBT in 4QFY11 compared to 14% in 4QFY10.
Staff costs went up steeply during 4QFY11. This is partly on account of one off 2nd pension
liability costs provided for in 4QFY11. The total 2nd pension liability is Rs 29.2bn. Of this, Rs
7.1bn pertaining to retired employees is charged off fully in FY11. Of the balance Rs 22.1bn,
a proportionate Rs 4.4bn (1/5th) is charged off in FY11. Further, the gratuity liability is Rs
4.3bn, of which a proportionate Rs 0.9bn (1/5th) is charged off in FY11.
Provision for bad loans remained stable at about 20bps qoq in 4QFY11. Gross slippages
went up qoq to about Rs 10bn in 4QFY11 (Rs 4.8bn in 3QFY11). However, net of recovery/up
gradations and write offs, the net increase in GNPLs was about Rs 2.7bn during 4QFY11.
According to management, part of the qoq increase in gross slippages is on account of year
end technical/audit led recognition.
Management guides for better asset quality going forward
In FY11, gross incremental slippages came down to about 170bps of opening loans (about Rs
29.1bn) compared to about 280bps in FY10 (about Rs 41.6bn). Going forward, management
guides for slippages to come down further to about 130bps in FY12.
The standard restructured loans (includes all facilities of borrowers and net of repayments)
were about Rs 90bn (4.1% of loan book) as of March 2011. GNPLs were 2.2% and net NPLs
were 0.9% of loan book as of March 2011. Going forward, the management targets to
maintain the net NPL ratio below 1%.
Business growth
Global loan book grew about 26% yoy, within which domestic loan book grew 22% yoy and
overseas loan book posted 41% yoy growth. The overseas loan book constitutes 24% of the
overall loan book as of March 2011 (21% as of March 2010)
According to management, power sector constitutes about 6% of the loan book and micro
finance exposure is about 0.1%.
Domestic low cost deposits (CASA) grew 18% yoy vs domestic deposit growth of 29% yoy in
FY11. The domestic CASA ratio thereby came down 250bps yoy to about 29% as of March
2011.
The tier I capital ratio was 8.33% as of March 2011. As regards capital raising issue and
growth plans, the management stated that the bank aims to maintain Tier I at 8.5% going
forward.
Key financials and valuation
The reported RoA improved 12bps yoy to 82bps in FY11. According to management, FY11
RoAs were negatively impacted on account of the one time staff related costs (2nd pension
liability/ gratuity). Going forward, management expects to maintain RoA at about 110-115bps
in FY12.
The book value was Rs 283 and adjusted book value was Rs 248 as of March 2011.
Reported EPS was Rs 47.4 in FY11.
At the current market price, the stock trades at 6.4x FY12F earnings and 1.4x FY12F adjusted
BV.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India posted adjusted core earnings largely in line with estimates in 4QFY11. One time
staff related provisions pulled down PAT below estimates. Slippages increased on qoq basis in
4QFY11. The management guides for stable asset quality going forward.
4QFY11: Adjusted core earnings largely in line
The adjusted (net of interest on income tax refund of Rs 2.8bn in 4QFY11) net interest
income (NII) increased 31% yoy to about Rs 20.3bn in 4QFY11 (+2% qoq). The global net
interest margin (adjusted) went up 37bps yoy to 2.94% in 4QFY11 (down 15bps on qoq
basis). Domestic NIMs were up 37bps yoy to about 3.4% (down 10bps qoq) and overseas
NIMs were up 30bps yoy to 1.24% (down 20bps qoq).
Core fee income posted a muted 4% yoy growth in 4QFY11 (+8% yoy in FY11). Treasury
gains were about 17% of PBT in 4QFY11 compared to 14% in 4QFY10.
Staff costs went up steeply during 4QFY11. This is partly on account of one off 2nd pension
liability costs provided for in 4QFY11. The total 2nd pension liability is Rs 29.2bn. Of this, Rs
7.1bn pertaining to retired employees is charged off fully in FY11. Of the balance Rs 22.1bn,
a proportionate Rs 4.4bn (1/5th) is charged off in FY11. Further, the gratuity liability is Rs
4.3bn, of which a proportionate Rs 0.9bn (1/5th) is charged off in FY11.
Provision for bad loans remained stable at about 20bps qoq in 4QFY11. Gross slippages
went up qoq to about Rs 10bn in 4QFY11 (Rs 4.8bn in 3QFY11). However, net of recovery/up
gradations and write offs, the net increase in GNPLs was about Rs 2.7bn during 4QFY11.
According to management, part of the qoq increase in gross slippages is on account of year
end technical/audit led recognition.
Management guides for better asset quality going forward
In FY11, gross incremental slippages came down to about 170bps of opening loans (about Rs
29.1bn) compared to about 280bps in FY10 (about Rs 41.6bn). Going forward, management
guides for slippages to come down further to about 130bps in FY12.
The standard restructured loans (includes all facilities of borrowers and net of repayments)
were about Rs 90bn (4.1% of loan book) as of March 2011. GNPLs were 2.2% and net NPLs
were 0.9% of loan book as of March 2011. Going forward, the management targets to
maintain the net NPL ratio below 1%.
Business growth
Global loan book grew about 26% yoy, within which domestic loan book grew 22% yoy and
overseas loan book posted 41% yoy growth. The overseas loan book constitutes 24% of the
overall loan book as of March 2011 (21% as of March 2010)
According to management, power sector constitutes about 6% of the loan book and micro
finance exposure is about 0.1%.
Domestic low cost deposits (CASA) grew 18% yoy vs domestic deposit growth of 29% yoy in
FY11. The domestic CASA ratio thereby came down 250bps yoy to about 29% as of March
2011.
The tier I capital ratio was 8.33% as of March 2011. As regards capital raising issue and
growth plans, the management stated that the bank aims to maintain Tier I at 8.5% going
forward.
Key financials and valuation
The reported RoA improved 12bps yoy to 82bps in FY11. According to management, FY11
RoAs were negatively impacted on account of the one time staff related costs (2nd pension
liability/ gratuity). Going forward, management expects to maintain RoA at about 110-115bps
in FY12.
The book value was Rs 283 and adjusted book value was Rs 248 as of March 2011.
Reported EPS was Rs 47.4 in FY11.
At the current market price, the stock trades at 6.4x FY12F earnings and 1.4x FY12F adjusted
BV.
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