Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India
Cut to Underperform on very
weak 1Q, asset quality slip
Cut two notches to U/p on weak 1Q, EPS cut and risk-return
We downgrade BOI two notches to Underperform and cut PO to Rs380, post 1Q
earnings miss by ~22% and sharply higher than estimated slippages (~Rs17bn).
We believe stock trading at +1.2x FY13 adj. book will de-rate to ~1.1x FY13 book
given a) earnings cut by +21% for FY12 and hence earnings growth of <12% yoy
in FY12; RoEs capped at <16/17% for FY12/13 and; b) mgmt. guidance of
slippages being high in 2Q, as +10% of loans to be still recognized via online
system. Finally, capital constraints (Tier 1 at ~8%) can also cap FY13 growth,
esp. if dilution not forthcoming. Assuming dilution of ~13%, Tier 1 to jump by
~100bps, but cap RoEs at <16% (FY13). Hence, U/p.
1Q: Disappoints on all fronts; sharp jump in slippages
BOI reported disappointing 1Q earnings of Rs5.2bn (29% yoy decline; miss by
~22%). Topline grew only 6% yoy (9% below est.), as margins slid to 2.2% (down
70-75bps yoy and qoq) on rising funding costs (incl. saving rate adj.), as well
reversal of interest on a/c’s now classified as NPLs. CASA (domestic) slid
+210bps. Fee growth weak at <10% yoy. Slippages too rose sharply (~Rs17bn) in
1Q, half of which were due to online NPL system. Moreover, bank saw another
~Rs9bn added in restructured a/c (5.1% of loans; slippages to NPLs at +21%).
Profit cut by ~21% for FY12/13; growth at ~16/25% now
We have cut our net profit estimates by ~21% for FY12/13, as we believe the
bank is likely to remain challenged on topline growth (margins) owing to a) rising
domestic funding costs; b) pressure on overseas margins and; c) declining CASA.
Moreover, credit costs to remain at elevated levels (~60bps) owing to rising
slippages; we estimate slippages at ~Rs41bn for FY12 (vs. Rs29bn in FY11).
Price objective basis & risk
Bank of India (XDIIF)
We set our PO on BOI at Rs380. We believe stock trading at +1.2x FY13 adj.
book will de-rate to 1.1x FY13 book given a) earnings cut by +21% for FY12 and
hence earnings growth of <12% yoy in FY12, RoEs capped at 16/17% for
FY12/13 and, b) mgmt. guidance of slippages being high in 2Q, as +10% of loans
to be still recognized via online system. Our PO is based on Gordon multiples
(RoE of 16.0pct average and CoE of 14pct). A sharp rise in bond yields can hurt
earnings growth and faster overseas spreads can come under pressure if
international rates spike. Alternatively, upside risks from better than expected
asset quality going ahead could improve earnings and stock performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India
Cut to Underperform on very
weak 1Q, asset quality slip
Cut two notches to U/p on weak 1Q, EPS cut and risk-return
We downgrade BOI two notches to Underperform and cut PO to Rs380, post 1Q
earnings miss by ~22% and sharply higher than estimated slippages (~Rs17bn).
We believe stock trading at +1.2x FY13 adj. book will de-rate to ~1.1x FY13 book
given a) earnings cut by +21% for FY12 and hence earnings growth of <12% yoy
in FY12; RoEs capped at <16/17% for FY12/13 and; b) mgmt. guidance of
slippages being high in 2Q, as +10% of loans to be still recognized via online
system. Finally, capital constraints (Tier 1 at ~8%) can also cap FY13 growth,
esp. if dilution not forthcoming. Assuming dilution of ~13%, Tier 1 to jump by
~100bps, but cap RoEs at <16% (FY13). Hence, U/p.
1Q: Disappoints on all fronts; sharp jump in slippages
BOI reported disappointing 1Q earnings of Rs5.2bn (29% yoy decline; miss by
~22%). Topline grew only 6% yoy (9% below est.), as margins slid to 2.2% (down
70-75bps yoy and qoq) on rising funding costs (incl. saving rate adj.), as well
reversal of interest on a/c’s now classified as NPLs. CASA (domestic) slid
+210bps. Fee growth weak at <10% yoy. Slippages too rose sharply (~Rs17bn) in
1Q, half of which were due to online NPL system. Moreover, bank saw another
~Rs9bn added in restructured a/c (5.1% of loans; slippages to NPLs at +21%).
Profit cut by ~21% for FY12/13; growth at ~16/25% now
We have cut our net profit estimates by ~21% for FY12/13, as we believe the
bank is likely to remain challenged on topline growth (margins) owing to a) rising
domestic funding costs; b) pressure on overseas margins and; c) declining CASA.
Moreover, credit costs to remain at elevated levels (~60bps) owing to rising
slippages; we estimate slippages at ~Rs41bn for FY12 (vs. Rs29bn in FY11).
Price objective basis & risk
Bank of India (XDIIF)
We set our PO on BOI at Rs380. We believe stock trading at +1.2x FY13 adj.
book will de-rate to 1.1x FY13 book given a) earnings cut by +21% for FY12 and
hence earnings growth of <12% yoy in FY12, RoEs capped at 16/17% for
FY12/13 and, b) mgmt. guidance of slippages being high in 2Q, as +10% of loans
to be still recognized via online system. Our PO is based on Gordon multiples
(RoE of 16.0pct average and CoE of 14pct). A sharp rise in bond yields can hurt
earnings growth and faster overseas spreads can come under pressure if
international rates spike. Alternatively, upside risks from better than expected
asset quality going ahead could improve earnings and stock performance.
No comments:
Post a Comment