Angel Broking : Result Update: Bank of India - 2QFY2015

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For 2QFY2015, Bank of India (BOI) reported a PAT growth of 26.4% yoy to `786cr,

mainly on account of 19.9% yoy growth in NII and decline in provisions by 21.8% yoy.

Strong business growth; Global NIM improves sequentially: During

2QFY2015, the bank registered a strong 18.3% yoy growth in its overall

advances, aided by a robust growth in its international loan book, which grew by

25.7% yoy. Domestic advances grew by 15.4%, led by agriculture, MSME and

retail which grew by 23.7%, 22.4% and 17.96%, respectively. In the retail

portfolio, 62% of loans are secured by mortgage as compared to 55% in

2QFY2014. Deposits for the bank also grew at a strong pace of 19.9% yoy.

Domestic CASA deposits grew at a moderate pace of 12.3% yoy, with domestic

CASA ratio at 27.7% as compared to 29.7% in 2QFY2014. Domestic NIMs for

the bank improved sequentially by 28bp to 2.73% due to higher recoveries, which

resulted in increase in yield on advances. Global NIMs improved 15bp qoq to

2.31%. The bank’s non-interest income (excluding treasury) de-grew by 17.9%

yoy while the fee income grew 13.1% yoy. The Management has guided at the fee

income growing by 20% yoy in FY2015.

The bank reported sequentially lower slippages during the quarter. The

annualized slippage ratio for the bank came in at 3.2% as compared to 4.1% in

1QFY2015. Recoveries/upgrades during the quarter came in higher at `643cr as

compared to `426cr in 2QFY2014 but were lower as compared to `1,203cr in

1QFY2015. The Gross NPA ratio increased from 3.28% in 1QFY2015 to 3.54%

in 2QFY2015. The Management has guided at the Gross NPA ratio being in the

range of 3-3.15% for FY2015 on account of better recovery and upgrades.

During the quarter, the bank restructured advances worth `1,358cr, thereby

taking its total standard restructured book to `11,738cr (2.94% of advances).

Going ahead, as per the Management, the restructuring pipeline stands around

`1,500cr, largely contributed by the EPC segment.

Outlook and valuation: BOI is expected to be one of the beneficiaries of an

improved economic and policy environment. Further with inflation consistently

declining, we expect interest rates to decline. This is expected to improve the

operating performance of BOI on all fronts including credit growth, asset quality

and treasury gains. Inspite of the recent run up in the stock price, the bank is

trading at a relatively cheap valuation of 0.6x FY2016E ABV. We recommend a

Buy rating on the stock with a target price of `353.