Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India (BOI)
Downgrade to N: 1QFY12 – Earnings disappoint yet again
1Q profits significantly below our estimates due to sharp dip
in margins and continuing asset quality woes
Earnings outlook bleak; lower margin and more pain on
asset quality yet to come; we cut earnings by 25% for FY12e
and 21% for FY13e
Downgrade to N from OW; cut TP to INR435 from INR521,
implying a total potential return of 10%
1Q FY12 earnings came significantly lower at INR5.18bn, a 29% y-o-y decline. Profits
were way below ours and street’s estimates, mainly due to sharp drop in margins and
significantly higher slippages, dampening our hopes yet again of a turnaround in the
bank’s performance. The stock corrected over 3% by the close of trading.
Operational review: BoI’s margins suffered significantly during 1Q, declining by as
much as 75 bps q-o-q to 2.2% due to the bank’s inability to pass on the steep rise in
funding cost, reversal of INR1.75bn interest income due to slippage in agriculture
portfolio and lower investment yields. Results were further impacted by credit losses
(0.73% of loans) due to higher loan slippages, mainly in smaller accounts and agriculture
portfolio. The bank reported a gross slippage of 3.1% (INR16.8bn), while the net addition
was INR9.8bn q-o-q, taking the gross NPL ratio higher to 2.7% vs. 2.23% (q-o-q).
Approximately INR8bn gross NPLs were due to the ongoing migration to system-based
NPL. Restructured book crossed 5% of gross loans with the total slippage from
restructured book increasing further to 19.3%. The bank is yet to recognize ~10% of loans
under system-based NPLs, which will be completed in 2Q.
Earnings outlook: Earnings are likely to remain weak in the current fiscal year. While
margins have mostly bottomed out, the bank is still likely to end FY12 ~40 bps lower than
the FY11 level. Also, we believe asset quality woes will continue even after fully
recognising system-based NPLs in 2Q. Accordingly, continuing lower margins and higher
credit costs has led us to cut our earnings estimates sharply by 25% for FY12 and 21% for
FY13, while we introduce FY14 estimates.
Valuations: After the earnings cut, BoI is now trading at 12-month rolling multiples of 7.8x
PE and 1.2x PB, which are at significant premium to peers. Given the bleak visibility and
significant cut in earnings estimates, we are lowering BoI’s valuation to its 5-year average
multiples of 6x PE and 1.2x PB, giving us a new target price of INR435 (earlier INR521),
implying a total potential return (including dividends) of 10%. Downgrade to Neutral. Upside
risks: 1) significant improvement in macro-economic environment, 2) sharp rebound in
margins; downside risks: worse asset quality, higher credit costs
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India (BOI)
Downgrade to N: 1QFY12 – Earnings disappoint yet again
1Q profits significantly below our estimates due to sharp dip
in margins and continuing asset quality woes
Earnings outlook bleak; lower margin and more pain on
asset quality yet to come; we cut earnings by 25% for FY12e
and 21% for FY13e
Downgrade to N from OW; cut TP to INR435 from INR521,
implying a total potential return of 10%
1Q FY12 earnings came significantly lower at INR5.18bn, a 29% y-o-y decline. Profits
were way below ours and street’s estimates, mainly due to sharp drop in margins and
significantly higher slippages, dampening our hopes yet again of a turnaround in the
bank’s performance. The stock corrected over 3% by the close of trading.
Operational review: BoI’s margins suffered significantly during 1Q, declining by as
much as 75 bps q-o-q to 2.2% due to the bank’s inability to pass on the steep rise in
funding cost, reversal of INR1.75bn interest income due to slippage in agriculture
portfolio and lower investment yields. Results were further impacted by credit losses
(0.73% of loans) due to higher loan slippages, mainly in smaller accounts and agriculture
portfolio. The bank reported a gross slippage of 3.1% (INR16.8bn), while the net addition
was INR9.8bn q-o-q, taking the gross NPL ratio higher to 2.7% vs. 2.23% (q-o-q).
Approximately INR8bn gross NPLs were due to the ongoing migration to system-based
NPL. Restructured book crossed 5% of gross loans with the total slippage from
restructured book increasing further to 19.3%. The bank is yet to recognize ~10% of loans
under system-based NPLs, which will be completed in 2Q.
Earnings outlook: Earnings are likely to remain weak in the current fiscal year. While
margins have mostly bottomed out, the bank is still likely to end FY12 ~40 bps lower than
the FY11 level. Also, we believe asset quality woes will continue even after fully
recognising system-based NPLs in 2Q. Accordingly, continuing lower margins and higher
credit costs has led us to cut our earnings estimates sharply by 25% for FY12 and 21% for
FY13, while we introduce FY14 estimates.
Valuations: After the earnings cut, BoI is now trading at 12-month rolling multiples of 7.8x
PE and 1.2x PB, which are at significant premium to peers. Given the bleak visibility and
significant cut in earnings estimates, we are lowering BoI’s valuation to its 5-year average
multiples of 6x PE and 1.2x PB, giving us a new target price of INR435 (earlier INR521),
implying a total potential return (including dividends) of 10%. Downgrade to Neutral. Upside
risks: 1) significant improvement in macro-economic environment, 2) sharp rebound in
margins; downside risks: worse asset quality, higher credit costs
No comments:
Post a Comment