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India Equity Research Reports, IPO and Stock News
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Bank of India-------------------------------------------------------------------------- Maintain NEUTRAL
Weak 1Q12 results
● BoI’s 1Q profits of Rs5.2 bn (-29% YoY; 0.6% RoAs) were well
below estimates driven by very weak operating perf. (weak NII,
fee, higher provisions). Operating profits were down 13% YoY.
● NIMs witnessed a steep 75 bp QoQ drop driven by a sharp rise in
funding costs (+77 bp QoQ) & interest reversal from NPLs (25 bp
NIM impact). Deposit franchise (30% CASA), fee growth (+6%
YoY) continued to be weak. Loan growth was in line with system.
● Asset quality had disappointed again with slippages picking up to
3.2% of loans (vs 2.1% in 4Q). About 50% slippages are due to
system based NPL recognition and mgmt expects slippages to be
high even in 2Q. Our FY12-13 credit cost forecasts are at 0.7%-
0.85%. BoI’s asset quality volatility & quantum continues to be
high vs peers, making it tough to get clarity on the future outlook.
● Our FY12-13 estimates reduce by 16-5% on the back of lower
margins & higher provisions (target price reduces to Rs419 from
Rs433 earlier). At 1.1x FY13B/V (10-20% discount to peers) and
RoAs below peers (0.7-0.8% FY12-13 RoAs), retain NEUTRAL.
Weak operating performance
Loan book was flat sequentially (vs +3% system growth) and YoY loan
growth (22%) was in line with system growth. Corporate and agri were
key growth drivers. Management is targeting 20% growth in FY12.
Margins contracted a sharp 75 bp QoQ (vs our expectation of a 20 bp
drop) to 2.9% due to a 77 bp QoQ rise in the cost of funds (yield on
advances were up only 8 bp QoQ). 25 bp NIM impact was due to the
interest reversal from system generated NPLs. Domestic NIMs were
down 95 bp QoQ to 2.4%. Management expects NIMs to rebound to
2.5% levels in the next quarter. Fee income growth continued to be
weak (6% YoY) and the bank expects fee growth to lag asset growth
in FY12. Share of CASA continued to be low at 30% (down 234 bp
YoY). Cost-income during the quarter declined to 46% (vs 64% in
4Q11) with the absence of second pension provisions for retired
employees. Tier I is currently at 8.0% and might be looking to raise
capital in the near term.
Asset quality deteriorates
Gross slippages during the period were higher than expected at 3.2%
of loans (vs 2.1% in 4Q) leading to credit costs of 0.9% (vs 0.9% in
3Q). Half the slippages are due to the movement to system-based
NPLs. Despite the higher credit costs, gross NPLs were up a sharp
20% QoQ (to 2.7%) and the coverage dropped 542 bp QoQ to 67%
(from 72% incl. write-offs in 4Q). Management has indicated slippages
are likely to be high even in 2Q12 (loans below Rs0.5 mn are yet to be
shifted to system-based NPLs) and expects slippages of 1.5-1.7% in
FY12. The bank has further restructured Rs9.5 bn (0.45% of loans)
during the quarter and o/s restr’d loans are at 5.2% of the loans. Our
forecast FY12-13 credit costs are at 0.7-0.85%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India-------------------------------------------------------------------------- Maintain NEUTRAL
Weak 1Q12 results
● BoI’s 1Q profits of Rs5.2 bn (-29% YoY; 0.6% RoAs) were well
below estimates driven by very weak operating perf. (weak NII,
fee, higher provisions). Operating profits were down 13% YoY.
● NIMs witnessed a steep 75 bp QoQ drop driven by a sharp rise in
funding costs (+77 bp QoQ) & interest reversal from NPLs (25 bp
NIM impact). Deposit franchise (30% CASA), fee growth (+6%
YoY) continued to be weak. Loan growth was in line with system.
● Asset quality had disappointed again with slippages picking up to
3.2% of loans (vs 2.1% in 4Q). About 50% slippages are due to
system based NPL recognition and mgmt expects slippages to be
high even in 2Q. Our FY12-13 credit cost forecasts are at 0.7%-
0.85%. BoI’s asset quality volatility & quantum continues to be
high vs peers, making it tough to get clarity on the future outlook.
● Our FY12-13 estimates reduce by 16-5% on the back of lower
margins & higher provisions (target price reduces to Rs419 from
Rs433 earlier). At 1.1x FY13B/V (10-20% discount to peers) and
RoAs below peers (0.7-0.8% FY12-13 RoAs), retain NEUTRAL.
Weak operating performance
Loan book was flat sequentially (vs +3% system growth) and YoY loan
growth (22%) was in line with system growth. Corporate and agri were
key growth drivers. Management is targeting 20% growth in FY12.
Margins contracted a sharp 75 bp QoQ (vs our expectation of a 20 bp
drop) to 2.9% due to a 77 bp QoQ rise in the cost of funds (yield on
advances were up only 8 bp QoQ). 25 bp NIM impact was due to the
interest reversal from system generated NPLs. Domestic NIMs were
down 95 bp QoQ to 2.4%. Management expects NIMs to rebound to
2.5% levels in the next quarter. Fee income growth continued to be
weak (6% YoY) and the bank expects fee growth to lag asset growth
in FY12. Share of CASA continued to be low at 30% (down 234 bp
YoY). Cost-income during the quarter declined to 46% (vs 64% in
4Q11) with the absence of second pension provisions for retired
employees. Tier I is currently at 8.0% and might be looking to raise
capital in the near term.
Asset quality deteriorates
Gross slippages during the period were higher than expected at 3.2%
of loans (vs 2.1% in 4Q) leading to credit costs of 0.9% (vs 0.9% in
3Q). Half the slippages are due to the movement to system-based
NPLs. Despite the higher credit costs, gross NPLs were up a sharp
20% QoQ (to 2.7%) and the coverage dropped 542 bp QoQ to 67%
(from 72% incl. write-offs in 4Q). Management has indicated slippages
are likely to be high even in 2Q12 (loans below Rs0.5 mn are yet to be
shifted to system-based NPLs) and expects slippages of 1.5-1.7% in
FY12. The bank has further restructured Rs9.5 bn (0.45% of loans)
during the quarter and o/s restr’d loans are at 5.2% of the loans. Our
forecast FY12-13 credit costs are at 0.7-0.85%.
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