Bank of India posted robust net profit growth of 90.8% yoy, but it came in lower
by 14.9% qoq to `617cr for 2QFY2011. Net profit growth was aided by lower
provisioning expenses and lower effective tax rate.
Operating performance in line with industry; Asset quality disappoints: Advances
grew 2.6% qoq and 20.8% yoy to `1,81,437cr and deposits grew 3.2% qoq and
21.3% yoy to `2,41,071cr. Reported NIM declined by 8bp sequentially to 2.81%
due to the 30bp qoq increase in cost of funds, which was partially offset by the
9bp increase in yield on advances and 36bp rise in yield on investments. NII
grew by a healthy 26.1% yoy to `1,776cr. The domestic CASA ratio improved to
33.2% (32.6% in 1QFY2011). Slippages remained high sequentially at `818cr
(annualised slippage ratio of 1.94%) compared to `618cr in 1QFY2011
(annualised slippage ratio of 1.47%). NPA ratios improved on account of growth
in advances with gross NPAs at 2.64% (2.70% in 1QFY2011) and 1.14% (1.18%
in 1QFY2011), respectively. Restructured assets declined from `10,129cr in
1QFY2011 to `10,032cr in 2QFY2011 (5.5% of advances and 64% of the net
worth). There were slippages of `243cr (much higher than `72cr of 1QFY2011)
from restructured assets.
Outlook and Valuation: The bank’s RoEs are expected to improve over the
coming quarters on the back of declining NPA provisions, notwithstanding the
higher-than-expected slippages in 2QFY2011. We had upgraded the stock to
Accumulate at ~`340 levels (at 1.1x FY2012E P/ABV). However, at the CMP, the
stock is trading at 8.9x FY2012E EPS of `60.5 and 1.69x FY2012E ABV, which
we believe prices in the expected improvement in the bank’s fundamentals.
Hence, we remain Neutral on the stock.
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