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India Equity Research Reports, IPO and Stock News
India Equity Research Reports, IPO and Stock News
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TP : Rs420
Investment Rationale
§ Concerns on asset quality unlikely to ease – GNPA/NNPA during Q1 were up 20.4%/38.3% respectively.
While the bank has been closely monitoring its slippages and recoveries, given the vulnerable nature of
agriculture and SME segment, we expect bank to report higher GNPA and slippages in Q2 as well. Slippages
stood at 3.1% annualized with credit cost at 0.7%.
§ Capital constraint likely to hinder growth- BOI’s CAR as at end Q1FY12 stood at 11.6% with tier I CAR of
8%. With very high net NPLs/net worth ratio at 15%, the bank has again approached the government for
additional capital. Earlier in March-11, GoI had infused Rs10bn as capital thereby raising its stake to 65.9%. We
expect bank to report 17% CAGR in loan portfolio over FY11-13E.
§ Margin improvement in H2FY12; only positive – Through lending rate hikes and re-pricing of deposits
including shedding of bulk deposits on domestic front and shift in loan portfolio towards ECB financing on
international front will aid margin expansion. Q1FY12 NIM at 2.2% (adjusted for w/off.) was a multi-quarter low.
Valuations
§ At CMP, stock trades at 1.1x FY12E/0.9x FY13E ABV. With average RoE / RoA at 17.8%/0.8, valuations appear
justified given concerns on NPA.
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