Angel Broking - Bank of Maharashtra - RU4QFY2012- Result Updates - PDF link

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Bank of Maharashtra - RU4QFY2012

Bank of Maharashtra to dilute 5% of its equity to LIC

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Bank of Maharashtra (BoM) will sell shares worth about Rs 100 crore to India's life insurance leader Life Insurance Corporation (LIC), diluting 5% of its equity that will help the public sector bank improve the capital position enabling it to lend more. The government-owned bank has decided to issue shares to LIC before the end of this fiscal. Post-share sale, LIC's stake in the bank will increase to more than 11%. Bank of Maharashtra's tier I capital - reserves and equity - is 7.6% and following infusion of capital by LIC it will cross 8% - the basic minimum that government desires in PSU banks. "We also expect the government to infuse Rs 860 crore in the bank sometime soon," said a bank official who did not want to be identified. Last year, the government had invested Rs 1,000 crore in the bank. Shares of BoM rose 2% to Rs 56 at the Bombay Stock Exchange (BSE). Widening fiscal deficit has prompted the government to approach LIC to invest in government-owned banks - a move which will help the government trim expenses and yet retain control over banks. The government had targeted fiscal deficit - difference between income and expenses - at 4.6% of gross domestic product (GDP) for the current fiscal, but many fear it would cross 5% as the government failed to raise money by way of divesting its stake holding in state-owned companies. Dena Bank was among the first bank to announce decision to dilute equity in favour of LIC. The insurance company would be acquiring a 5% stake for an investment of around Rs 125 crore and the transaction would be complete by end of this fiscal. LIC's stake in Dena Bank will increase to little over 11% after the bank issues shares on a preferential basis to the insurer. However, the government's stake would fall to 55%, which is below the 58% threshold limit they prefers to hold in state-owned banks.

Bank of Maharashtra :: 2QFY2012 Result Update -Angel Broking,

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For 2QFY2012, Bank of Maharashtra posted a robust net profit growth of 92.0%
yoy (primarily due to a low-base effect) to `100cr, above our estimates, due to
higher than expected growth in net interest income as well as non-interest income
and significantly lower provisioning expenses than built in by us. Sequential
improvement in NIMs, healthy growth in fee income and sharp improvement in
asset quality were the key positive takeaways from the results. We maintain our
Buy recommendation on the stock.
Remarkable quarter in terms of earning quality: During 2QFY2012, advances
grew by a strong 24.0% yoy, while deposit grew by a moderate 12.5% yoy.
Consequently, the bank’s incremental CD ratio for 2QFY2012 stood at 227.6%,
leading to overall CD ratio improving from 69.1% in 1QFY2012 to 72.1% in
2QFY2012. CASA deposits growth was comparable to the deposit growth at
12.4% yoy, with saving account deposits rising by 13.3% yoy. On the back of
reasonable growth in CASA deposits, the bank was able to improve its CASA ratio
albeit marginally to 40.7%. During 2QFY2012, the yield on advances for the
bank increased by 62bp to 11.5%, while the cost of deposits increased by a lower
36bp, leading to a 16bp qoq expansion in calculated NIMs. The bank surprised
on the asset quality front with slippages declining by 50.3% qoq to `93cr
(average quarterly slippages of `226cr since 1QFY2010). The slippages which
have been on a declining trend since 1QFY2011 onwards, improved sharply in
2QFY2012 to 0.8%, compared to 1.6% in 1QFY2012 and 4.0% in 1QFY2011.
The gross NPA ratio improved to 2.2% compared to 2.4% in 1QFY2012, while
the net NPA ratio halved from 1.2% in 1QFY2012 to 0.6%. The provision
coverage ratio (including technical write-offs) improved further to 86.0%.
Outlook and valuation: We expect the bank to deliver a healthy 38.1% earnings
CAGR over FY2011–13E on the back of relatively better NIM, pick-up in fee
income and improving asset quality. At the CMP, the stock is trading at attractive
valuations, in our view, of 0.6x FY2013E ABV vs. its five-year range of 0.6–1.2x
and median of 0.9x. We maintain a Buy on the stock with a target price of `57.

Bank of Maharashtra : :: 2QFY2012, Result review: Angel Broking

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Bank of Maharashtra
For 2QFY2012, Bank of Maharashtra posted strong net profit growth of 52.0% yoy
to `100cr, above our estimates, due to higher-than-expected growth in net interest
income and non-interest income and significantly lower provisioning expenses than
built in by us. Sequential improvement in NIM, healthy growth in fee income and
sharp improvement in asset quality were the key positive takeaways from the
results.
Remarkable quarter in terms of earnings quality: During 2QFY2012, advances
grew strongly by 24.0% yoy to `50,043cr, while deposits grew moderately by
12.5% yoy to `63,976cr. Consequently, the bank’s incremental CD ratio for
2QFY2012 stood at 227.6%, leading to overall CD ratio improving from 69.1% in
1QFY2012 to 72.1% in 2QFY2012. CASA deposits growth was comparable to
deposit growth of 12.4% yoy, with saving account deposits rising by 13.3% yoy.
On the back of reasonable growth in CASA deposits, the bank was able to
improve its CASA ratio albeit marginally to 40.7%. During 2QFY2012, yield on
advances increased by 62bp to 11.5%, while cost of deposits increased by a lower
36bp, leading to a sequential expansion in reported NIM. The bank surprised on
the asset-quality front, with slippages declining by 50.3% qoq to `93cr (average
`226cr since 1QFY2010). Slippages, which have been on a declining trend since
1QFY2011, improved sharply in 2QFY2012 to 0.8% compared to 1.6% in
1QFY2012 and 4.0% in 1QFY2011. Gross NPA ratio improved to 2.2% compared
to 2.4% in 1QFY2012, while net NPA ratio halved from 1.2% in 1QFY2012 to


0.6%. Provision coverage ratio (including technical write-offs), which was as low as
54.7% in 1QFY2011, increased from 73.2% in 1QFY2012 to 86.0%.
We expect the bank to deliver healthy 38.1% earnings CAGR over FY2011-13E on
the back of largely stable NIM, pick-up in fee income and improving asset quality.
At the CMP, in our view, the stock is trading at attractive valuations of 0.6x
FY2013E ABV vs. its five-year range of 0.6-1.2x and median of 0.9x. We
recommend Buy on the stock with a target price of `57, implying an upside of
19.5% from current levels.