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Key Takeaways
Asset quality issues to persist
Bank of India's (BOI) asset quality deteriorated sharply in 1QFY12 with annualized
slippages of 3.2% compared with 1.7% in FY11. Of the gross slippages worth
INR16.8b in 1QFY12, slippages worth INR8b were due to system-based recognition
of NPAs (now loans above INR0.5m are covered under system based recognition of
NPA).
The management expects slippages of ~INR15b-16b in 2QFY12 as the bank takes
smaller accounts under the fold of the system-based NPA recognition method, post
which, slippages are likely to normalize.
Recoveries and upgrades are likely to gain pace in 2HFY12, resulting in lower net
additions to NPAs.
O/s restructured accounts at the end of 1QFY12 were INR111b (5.2% of the loan
book). Of the restructured loans, accounts totaling INR23.4b slipped into NPAs (21%
of the restructured book, the highest in the industry).
Margins likely to improve sequentially in 2QFY12
In 1QFY12 global margins contracted sharply by 75bp QoQ to 2.14% due to a steep
decline in domestic margins.
In 2QFY12, the management expects margins to improve to ~2.5% due to shedding
of high-cost bulk deposits. Resultantly, CD ratio is likely to improve, translating into
sequential margin improvement.
The management expects margins to improve to 2.75% by end of 4QFY12. However,
on a full year basis, margins are likely to be lower.
Other highlights
FY12 loan growth is expected to be ~18%, in line with the industry credit growth.
While CASA ratio declined from 35% in FY08 to ~29% in 1QFY12, the management
expects to sustain/improve CASA ratio from here as it is moderating its balance
sheet growth with increased focus on CASA deposits.
Valuations and view
We expect RoA of ~0.8% over FY12-13, RoE of 16-18% over FY12-13 and earnings
CAGR of ~20%. We expect BOI to report EPS of INR52 in FY12 and INR65 in FY13.
BV is expected to be INR333 in FY12 and INR384 in FY13. The stock trades at 0.9x
FY12E BV and 0.8x FY13E BV. Maintain Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Asset quality issues to persist
Bank of India's (BOI) asset quality deteriorated sharply in 1QFY12 with annualized
slippages of 3.2% compared with 1.7% in FY11. Of the gross slippages worth
INR16.8b in 1QFY12, slippages worth INR8b were due to system-based recognition
of NPAs (now loans above INR0.5m are covered under system based recognition of
NPA).
The management expects slippages of ~INR15b-16b in 2QFY12 as the bank takes
smaller accounts under the fold of the system-based NPA recognition method, post
which, slippages are likely to normalize.
Recoveries and upgrades are likely to gain pace in 2HFY12, resulting in lower net
additions to NPAs.
O/s restructured accounts at the end of 1QFY12 were INR111b (5.2% of the loan
book). Of the restructured loans, accounts totaling INR23.4b slipped into NPAs (21%
of the restructured book, the highest in the industry).
Margins likely to improve sequentially in 2QFY12
In 1QFY12 global margins contracted sharply by 75bp QoQ to 2.14% due to a steep
decline in domestic margins.
In 2QFY12, the management expects margins to improve to ~2.5% due to shedding
of high-cost bulk deposits. Resultantly, CD ratio is likely to improve, translating into
sequential margin improvement.
The management expects margins to improve to 2.75% by end of 4QFY12. However,
on a full year basis, margins are likely to be lower.
Other highlights
FY12 loan growth is expected to be ~18%, in line with the industry credit growth.
While CASA ratio declined from 35% in FY08 to ~29% in 1QFY12, the management
expects to sustain/improve CASA ratio from here as it is moderating its balance
sheet growth with increased focus on CASA deposits.
Valuations and view
We expect RoA of ~0.8% over FY12-13, RoE of 16-18% over FY12-13 and earnings
CAGR of ~20%. We expect BOI to report EPS of INR52 in FY12 and INR65 in FY13.
BV is expected to be INR333 in FY12 and INR384 in FY13. The stock trades at 0.9x
FY12E BV and 0.8x FY13E BV. Maintain Neutral.
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