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Bank of India
▼ Neutral
Previous: Overweight
BOI.BO, BOI IN
4Q11: asset quality disappoints, downgrade to Neutral
• We downgrade BOI to Neutral because: (1) Asset quality remains
volatile with increasing slippages in 4Q11 and increasing focus on
SME/Retail adds to our concern, (2) Relatively lower CASA could add
to margin pressure in the current environment, (3) Also low tier-1 capital
at 8.3% could lead to dilution risks in FY12E, which we believe would
be EPS dilutive. Current valuation at 1.2x FY12E is cheap, we think, but
dilution would restrict ROE improvement.
• Margins moderate: NII was higher mainly due to Rs3.0bn of IT refund.
Adjusted for the refund, margins contracted by ~15bps q/q to 2.94% q/q.
CASA contraction of 300bps highlights funding pressure though quarter
end growth in deposits exaggerated the impact. With management
expecting to maintain international margins at current levels, we expect
overall margins to come off by ~20bps in FY12, as funding costs would
pressure domestic margins.
• Asset quality remains volatile: Gross slippages have again inched up to
~2% in 4Q11 after an improvement in 3Q11. Though management
expects overall slippages to moderate to 1.2-1.3% in FY12 (1.6% in
FY11), increase in slippages in 4Q11 is a worry. Also higher targeted
growth in SME/Retail and relatively higher power exposure (4% of
loans) could impact asset quality over the medium term.
• 4Q11 Positives:(1) Loan growth was stronger than expected at ~11%
q/q, with international business and SME driving loan growth, (2)
Overall pension expenses (existing+ retired employees) at Rs29bn were
lower than expectations.
• Neutral with PT of Rs450/share: We cut our EPS estimates by 10-
13% mainly factoring in an Rs25bn dilution and higher credit costs and
cut our Gordon growth-based Mar-12 PT to Rs450/share from
Rs520/share, implying 1.3x FY12E book. Asset quality risks with
increasing SME/Retail focus and high power exposure remain our key
concerns.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India
▼ Neutral
Previous: Overweight
BOI.BO, BOI IN
4Q11: asset quality disappoints, downgrade to Neutral
• We downgrade BOI to Neutral because: (1) Asset quality remains
volatile with increasing slippages in 4Q11 and increasing focus on
SME/Retail adds to our concern, (2) Relatively lower CASA could add
to margin pressure in the current environment, (3) Also low tier-1 capital
at 8.3% could lead to dilution risks in FY12E, which we believe would
be EPS dilutive. Current valuation at 1.2x FY12E is cheap, we think, but
dilution would restrict ROE improvement.
• Margins moderate: NII was higher mainly due to Rs3.0bn of IT refund.
Adjusted for the refund, margins contracted by ~15bps q/q to 2.94% q/q.
CASA contraction of 300bps highlights funding pressure though quarter
end growth in deposits exaggerated the impact. With management
expecting to maintain international margins at current levels, we expect
overall margins to come off by ~20bps in FY12, as funding costs would
pressure domestic margins.
• Asset quality remains volatile: Gross slippages have again inched up to
~2% in 4Q11 after an improvement in 3Q11. Though management
expects overall slippages to moderate to 1.2-1.3% in FY12 (1.6% in
FY11), increase in slippages in 4Q11 is a worry. Also higher targeted
growth in SME/Retail and relatively higher power exposure (4% of
loans) could impact asset quality over the medium term.
• 4Q11 Positives:(1) Loan growth was stronger than expected at ~11%
q/q, with international business and SME driving loan growth, (2)
Overall pension expenses (existing+ retired employees) at Rs29bn were
lower than expectations.
• Neutral with PT of Rs450/share: We cut our EPS estimates by 10-
13% mainly factoring in an Rs25bn dilution and higher credit costs and
cut our Gordon growth-based Mar-12 PT to Rs450/share from
Rs520/share, implying 1.3x FY12E book. Asset quality risks with
increasing SME/Retail focus and high power exposure remain our key
concerns.
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