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M a r g i n s a n d a s s e t q u a l i t y g o f o r a t o s s …
Bank of India (BoI) has been facing flak for a long time as it grappled with
asset quality issues and one-off in retirement benefits in FY11. Q1FY12
saw margins plummeting 70 bps YoY to 2.19% as YoA improved only 51
bps YoY to 8.89% vs. a 122 bps YoY hike in CoF to 6%. Moreover,
business de-growth of 1.4% QoQ and interest income reversal of | 170
crore also impacted margins. Asset quality concerns persisted as
migration to system based NPA and agri NPA led to slippages of | 1684
crore. This pushed up GNPA by 20% QoQ to | 5791 crore. BoI is in for a
rough ride given the slowdown in credit growth, pressure on margins and
asset quality troubles. It has guided for NIM of 2.5% for FY12E, which is
the lowest among peer PSBs. We have lowered our credit growth to 19%
YoY from 20.3% YoY and revised net profits by 4.6% YoY for FY12E.
ƒ Margins plummet; lower NII and higher provision hit profits…
NIM slipped 70 bps YoY to 2.19% as YoA improved only 51 bps YoY
to 8.89% as against a 122 bps YoY hike in CoF to 6%. Higher
slippages to NPA also led to declassification of interest income to
the tune of | 170 crore. PAT was lower than expectation at | 517
crore as NII declined 20% QoQ and higher slippages pushed up
provisions by 19% QoQ. We expect NIM of 2.5-2.6% and expect
higher credit costs to subdue PAT growth at 15% YoY for FY12E.
ƒ Slippages high, asset quality woes to continue…
We expected the bank to be in the last phase of the asset quality
cycle and anticipated a trend reversal in H2FY12E. Slippages were
high at | 1684 crore as agri loans of ~| 600 crore, infra account of
~| 500 crore and accounts with balances exceeding | 5 lakh were
shifted to system based NPA recognition. The management expects
slippages to remain high in Q2FY12E as remaining 10% of loan book
still needs to be shifted. GNPA shot up 20% QoQ and NNPA
increased 38% QoQ to | 5791 crore and | 2690 crore, respectively.
We expect GNPA @ 2.1% and NNPA @ 1.1% by FY13E.
V a l u a t i o n
RoA and RoE have deteriorated from 1% and 20.4% in Q1FY11 to 0.59%
and 13.13% in Q1FY12. Since the Tier-I ratio is low at 8.02% the bank
may go in for capital raising leading to RoE dilution. We expect
headwinds on NIM and asset quality front to remain. Hence, we reduce
our target multiple to 1.3x FY13E ABV and value the bank at | 400.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M a r g i n s a n d a s s e t q u a l i t y g o f o r a t o s s …
Bank of India (BoI) has been facing flak for a long time as it grappled with
asset quality issues and one-off in retirement benefits in FY11. Q1FY12
saw margins plummeting 70 bps YoY to 2.19% as YoA improved only 51
bps YoY to 8.89% vs. a 122 bps YoY hike in CoF to 6%. Moreover,
business de-growth of 1.4% QoQ and interest income reversal of | 170
crore also impacted margins. Asset quality concerns persisted as
migration to system based NPA and agri NPA led to slippages of | 1684
crore. This pushed up GNPA by 20% QoQ to | 5791 crore. BoI is in for a
rough ride given the slowdown in credit growth, pressure on margins and
asset quality troubles. It has guided for NIM of 2.5% for FY12E, which is
the lowest among peer PSBs. We have lowered our credit growth to 19%
YoY from 20.3% YoY and revised net profits by 4.6% YoY for FY12E.
ƒ Margins plummet; lower NII and higher provision hit profits…
NIM slipped 70 bps YoY to 2.19% as YoA improved only 51 bps YoY
to 8.89% as against a 122 bps YoY hike in CoF to 6%. Higher
slippages to NPA also led to declassification of interest income to
the tune of | 170 crore. PAT was lower than expectation at | 517
crore as NII declined 20% QoQ and higher slippages pushed up
provisions by 19% QoQ. We expect NIM of 2.5-2.6% and expect
higher credit costs to subdue PAT growth at 15% YoY for FY12E.
ƒ Slippages high, asset quality woes to continue…
We expected the bank to be in the last phase of the asset quality
cycle and anticipated a trend reversal in H2FY12E. Slippages were
high at | 1684 crore as agri loans of ~| 600 crore, infra account of
~| 500 crore and accounts with balances exceeding | 5 lakh were
shifted to system based NPA recognition. The management expects
slippages to remain high in Q2FY12E as remaining 10% of loan book
still needs to be shifted. GNPA shot up 20% QoQ and NNPA
increased 38% QoQ to | 5791 crore and | 2690 crore, respectively.
We expect GNPA @ 2.1% and NNPA @ 1.1% by FY13E.
V a l u a t i o n
RoA and RoE have deteriorated from 1% and 20.4% in Q1FY11 to 0.59%
and 13.13% in Q1FY12. Since the Tier-I ratio is low at 8.02% the bank
may go in for capital raising leading to RoE dilution. We expect
headwinds on NIM and asset quality front to remain. Hence, we reduce
our target multiple to 1.3x FY13E ABV and value the bank at | 400.
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