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BOB posted weak net interest income growth in 1Q, but a lower delinquency ratio than peers was
a positive surprise. Domestic net interest margins slid qoq, prompting us to cut our FY12 and
FY13 profit estimates. However, as we expect BOB to continue delivering superior ROAS over
FY12-14, we maintain our Buy.
1QFY12: steep decline in NIMs; lower slippages a positive
BOB’s global net interest margins (NIMs) fell 58bp qoq to 2.9% in 1Q (flat yoy). Its domestic NIMs
slid 77bp qoq to 3.4%, while overseas NIMs were largely stable at about 1.4% (see Table 2). This
prompts us to cut our FY12 NIM forecast to 2.63% from 2.89%. However, loan slippages
remained lower than at peers, at 30bp of loans (on a one-year-lag-basis). As a result, provisions
for bad loans declined to 11bp of loans in 1QFY12 vs 17bp in 1QFY11 and 23bp in 4QFY11.
However, provision coverage fell to 70.1% from 74.9% in 4QFY11.
Business mix
Global loans grew 25% yoy (+1.6% qoq). The domestic loan book (73% of loans at end-June
2011) was largely flat qoq, with the overseas loan book accounting for most of the qoq loan
growth. However, management said loan sanctions have seen a sharp slowdown yoy. Total
deposits grew 22.9% yoy. Domestic deposits (76% of deposits at end-June 2011) grew 20.6%
yoy while overseas deposits grew 30.6% yoy. Low-cost deposits (CASA) accounted for 27.9% of
total deposits as of end-June 2011 vs 29.4% one year previously.
Overseas business
Overseas business contributed 25.7% to BOB’s total business in the quarter and 19.4% to its
gross profits. NIMs in the overseas business improved yoy to 1.37% from 1.31% in 1QFY11.
Gross NPLs were 0.62% of total loans in the overseas operation as at end-June 2011 (largely
stable qoq).
We cut our FY12F/FY13F earnings; we believe BOB retains its edge above peers, Buy
We reduce our earnings forecast by around 10% in FY12 and 12% in FY13, largely driven by our
lower net interest margin estimates. As a result, our target price falls to Rs987 (from Rs1,191).
We expect BOB to maintain a lower-than-peers delinquency ratio and, thus, a superior ROA of
1.2% over FY12-14, and we reiterate our Buy recommendation. At our target price, the stock
would trade at 1.7x FY12F adjusted book value and 8.3x FY12F earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BOB posted weak net interest income growth in 1Q, but a lower delinquency ratio than peers was
a positive surprise. Domestic net interest margins slid qoq, prompting us to cut our FY12 and
FY13 profit estimates. However, as we expect BOB to continue delivering superior ROAS over
FY12-14, we maintain our Buy.
1QFY12: steep decline in NIMs; lower slippages a positive
BOB’s global net interest margins (NIMs) fell 58bp qoq to 2.9% in 1Q (flat yoy). Its domestic NIMs
slid 77bp qoq to 3.4%, while overseas NIMs were largely stable at about 1.4% (see Table 2). This
prompts us to cut our FY12 NIM forecast to 2.63% from 2.89%. However, loan slippages
remained lower than at peers, at 30bp of loans (on a one-year-lag-basis). As a result, provisions
for bad loans declined to 11bp of loans in 1QFY12 vs 17bp in 1QFY11 and 23bp in 4QFY11.
However, provision coverage fell to 70.1% from 74.9% in 4QFY11.
Business mix
Global loans grew 25% yoy (+1.6% qoq). The domestic loan book (73% of loans at end-June
2011) was largely flat qoq, with the overseas loan book accounting for most of the qoq loan
growth. However, management said loan sanctions have seen a sharp slowdown yoy. Total
deposits grew 22.9% yoy. Domestic deposits (76% of deposits at end-June 2011) grew 20.6%
yoy while overseas deposits grew 30.6% yoy. Low-cost deposits (CASA) accounted for 27.9% of
total deposits as of end-June 2011 vs 29.4% one year previously.
Overseas business
Overseas business contributed 25.7% to BOB’s total business in the quarter and 19.4% to its
gross profits. NIMs in the overseas business improved yoy to 1.37% from 1.31% in 1QFY11.
Gross NPLs were 0.62% of total loans in the overseas operation as at end-June 2011 (largely
stable qoq).
We cut our FY12F/FY13F earnings; we believe BOB retains its edge above peers, Buy
We reduce our earnings forecast by around 10% in FY12 and 12% in FY13, largely driven by our
lower net interest margin estimates. As a result, our target price falls to Rs987 (from Rs1,191).
We expect BOB to maintain a lower-than-peers delinquency ratio and, thus, a superior ROA of
1.2% over FY12-14, and we reiterate our Buy recommendation. At our target price, the stock
would trade at 1.7x FY12F adjusted book value and 8.3x FY12F earnings.
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