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While Bank of India's FY11 income growth was healthy, the one-time staff provision dragged
RoA. Slippages fell yoy in FY11 and management has guided for further improvements in
asset quality going forward. Equity dilution is likely in FY12F. Valuations appear attractive;
we maintain our Buy rating.
Asset quality improves in FY11; management expects it to remain comfortable in FY12
In FY11, gross incremental slippages fell to about 150bp of average loans (about Rs29.1bn)
compared to about 270bp in FY10 (about Rs41.6bn). Going forward, management has
guided for slippages to fall to about 120-130bp in FY12. Standard restructured loans
(including all facilities of borrowers and net of repayments) were about Rs90bn (4.1% of loan
book) as of March 2011. GNPLs were 2.2% and net NPLs were 0.9% of the loan book as of
March 2011. Going forward, management expects to maintain net NPLs below 1.0%. We
build in 70bp credit costs for FY12 vs 77bp in FY11.
FY11: operating performance improves; one time staff costs lowers RoA
In FY11, net interest income to average assets improved 20bp yoy to 2.5%. The non-interest
income contribution fell 20bp yoy due to muted fee income growth and lower treasury gains.
Operating costs to assets increased 10bp yoy, partly driven by one-time staff-related
provision costs (second pension option). However, provision for bad loans to assets came
down 30bp yoy. On balance, the RoA improved 10bp yoy to 80bp in FY11. Management
targets an RoA of about 110-115bp in FY12.
Capital raising likely in FY12; our estimates do not factor this in
Tier-1 capital was at 8.3% as of March 2011. Given management’s target of maintaining tier I at
the 8.5% level, plus our estimates of balance sheet growth and profitability, we expect BOI to
raise equity capital in FY12. However, we have factored no equity dilution into our estimates.
Cut in earnings estimate; valuations have turned attractive, maintain Buy
We have cut our FY12-13 net profit estimate by about 7%, largely led by our lower core earnings
forecast. We maintain our Buy rating, but lower our target price to Rs463 due to the cut in
earnings and inclusion of FY14 forecasts, which lower the average ROE. At our target price, the
stock would trade at 1.6x FY12F adjusted book value and 7.8x FY12F earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
While Bank of India's FY11 income growth was healthy, the one-time staff provision dragged
RoA. Slippages fell yoy in FY11 and management has guided for further improvements in
asset quality going forward. Equity dilution is likely in FY12F. Valuations appear attractive;
we maintain our Buy rating.
Asset quality improves in FY11; management expects it to remain comfortable in FY12
In FY11, gross incremental slippages fell to about 150bp of average loans (about Rs29.1bn)
compared to about 270bp in FY10 (about Rs41.6bn). Going forward, management has
guided for slippages to fall to about 120-130bp in FY12. Standard restructured loans
(including all facilities of borrowers and net of repayments) were about Rs90bn (4.1% of loan
book) as of March 2011. GNPLs were 2.2% and net NPLs were 0.9% of the loan book as of
March 2011. Going forward, management expects to maintain net NPLs below 1.0%. We
build in 70bp credit costs for FY12 vs 77bp in FY11.
FY11: operating performance improves; one time staff costs lowers RoA
In FY11, net interest income to average assets improved 20bp yoy to 2.5%. The non-interest
income contribution fell 20bp yoy due to muted fee income growth and lower treasury gains.
Operating costs to assets increased 10bp yoy, partly driven by one-time staff-related
provision costs (second pension option). However, provision for bad loans to assets came
down 30bp yoy. On balance, the RoA improved 10bp yoy to 80bp in FY11. Management
targets an RoA of about 110-115bp in FY12.
Capital raising likely in FY12; our estimates do not factor this in
Tier-1 capital was at 8.3% as of March 2011. Given management’s target of maintaining tier I at
the 8.5% level, plus our estimates of balance sheet growth and profitability, we expect BOI to
raise equity capital in FY12. However, we have factored no equity dilution into our estimates.
Cut in earnings estimate; valuations have turned attractive, maintain Buy
We have cut our FY12-13 net profit estimate by about 7%, largely led by our lower core earnings
forecast. We maintain our Buy rating, but lower our target price to Rs463 due to the cut in
earnings and inclusion of FY14 forecasts, which lower the average ROE. At our target price, the
stock would trade at 1.6x FY12F adjusted book value and 7.8x FY12F earnings.
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