Core remains weak - BOI :: HDFC Sec

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Core remains weak
BOI’s results were a mixed bag. Key positives were 1)
optically sharp improvement in NIM leading to 9%
beat on core earnings & 2) steady domestic CASA
ratio. Key negatives were (1) continued elevated
stress addition (2) higher than industry book growth
incl. growth in several stressed segments & (3) sharp
rise in opex and lower fees.
BOI continues to guide for loan growth higher than
the industry avg., despite a moderation in 2Q (base
effect). 2Q was yet another quarter of volatile
performance on asset quality and NIM. Further,
wage revision provisions at 10.5% (lower than mid
tier peers), shifting to the revised mortality table (Rs
6bn impact) and revision in salary assumptions might
come as a negative surprise in 2HFY15. Driven by
high dilution risk, a weak RoA profile and exposure to
stressed sectors, we maintain our NEUTRAL rating.
Revise TP to Rs 309/sh (0.9xFY16E ABV).
 Led by sharp improvement in NIM (domestic NIMs at
2.7%, +30bps QoQ), NII grew 20% YoY. Loan growth
remains elevated at 18% and deposits & CASA growing
~20/12% respectively. With higher than estimated
opex (+25/15% YoY/QoQ) and subdued core fees, core
PPoP was in-line with estimates. PAT grew 26% YoY
(low base) to Rs 7.9bn (9% below estimates), driven by
22% decline in provisions (LLP: 82bps ann.)
 Asset quality performance continues to be sluggish.
G/NNPA increased ~13% each QoQ (on high base), with
slippage of Rs 29.7bn i.e. 3.1% ann. (50% contributed
from the restructured pool). Total reductions (Rs
13.8bn) incl. recoveries & upgrades in vintage accounts
of Rs 12.5bn and W/Os of Rs 1.2bn. Management
guided for G/NNPA of 3.15/2.1% for FY15 vs.
3.54/2.32% as on 1HFY15, which we believe to be an
aggressive target. We have factored slippages of avg.
2.6% over FY15-16E.
 BOI restructured assets worth Rs ~13.6bn (1.4% ann.)
and indicated at a pipeline of Rs 15-16bn. BOI’s
restructured assets stood at Rs 117bn i.e. 3% of loans,
which looks relatively low compared to peers. BOI
reported restructured loans for the last eight quarters
vs. the total O/S restructured loans reported by peers.
O/S domestic/foreign std restructured pool stands at
Rs 98/20bn i.e. 3.7/1.5% of respective book.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009569