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Bank of India
F1Q12: All-Round Weakness,
Maintain UW
What's Changed
Price Target Rs415 to Rs355
% EPS Chg F12e/F13e -15.4%/-11.9%
We remain UW – NIM pressures are likely to
continue, further deterioration in asset quality is
a risk as rates remain higher for longer, and Tier I
ratio is weak at 8.3%. BOI trades at 8.3x F12e P/E
and 1.1x F12 BV. Our price target falls by 15% to
Rs355 to reflect a weaker than expected F1Q12.
BOI reported a big profit miss (-29% YoY, +5%
QoQ, 19% below our estimate) – The key driver of
the miss was NIM’s which were down 75 bps QoQ
thereby causing 18% sequential contraction in NII.
Other parts of the P&L were also weak - new NPL
formation picked up and fee/volume growth was
muted. The results also pointed to early signs of asset
quality issues in Indian infrastructure loans.
Margins compressed by 75 bps QoQ to 2.19%:
About 25 bps of the compression arose from interest
reversal on NPLs, hence could be considered one-off.
Deposit repricing drove the remaining 50 bps.
Although term deposits costs moved up 80 bps QoQ
to 8.1%, there is still meaningful potential upwards
repricing of deposit costs ahead.
Asset quality deteriorated: New NPL formation picked
up to Rs16.8 bn (3.1% of loans). About half came from
migration to system-based classification of NPLs. 10%
of loan book still has to be migrated to the new system,
implying further risk in F2Q. The other surprise was the
infra segment. BOI reported slippage into NPL from a
restructured road project and also indicated that it had
done a fresh restructuring of a power project due to shift
in completion date (being implemented by a large
developer). Underlying coverage is now only 54%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India
F1Q12: All-Round Weakness,
Maintain UW
What's Changed
Price Target Rs415 to Rs355
% EPS Chg F12e/F13e -15.4%/-11.9%
We remain UW – NIM pressures are likely to
continue, further deterioration in asset quality is
a risk as rates remain higher for longer, and Tier I
ratio is weak at 8.3%. BOI trades at 8.3x F12e P/E
and 1.1x F12 BV. Our price target falls by 15% to
Rs355 to reflect a weaker than expected F1Q12.
BOI reported a big profit miss (-29% YoY, +5%
QoQ, 19% below our estimate) – The key driver of
the miss was NIM’s which were down 75 bps QoQ
thereby causing 18% sequential contraction in NII.
Other parts of the P&L were also weak - new NPL
formation picked up and fee/volume growth was
muted. The results also pointed to early signs of asset
quality issues in Indian infrastructure loans.
Margins compressed by 75 bps QoQ to 2.19%:
About 25 bps of the compression arose from interest
reversal on NPLs, hence could be considered one-off.
Deposit repricing drove the remaining 50 bps.
Although term deposits costs moved up 80 bps QoQ
to 8.1%, there is still meaningful potential upwards
repricing of deposit costs ahead.
Asset quality deteriorated: New NPL formation picked
up to Rs16.8 bn (3.1% of loans). About half came from
migration to system-based classification of NPLs. 10%
of loan book still has to be migrated to the new system,
implying further risk in F2Q. The other surprise was the
infra segment. BOI reported slippage into NPL from a
restructured road project and also indicated that it had
done a fresh restructuring of a power project due to shift
in completion date (being implemented by a large
developer). Underlying coverage is now only 54%.
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