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BOI disappointed on NIM as cost of funds increased sharply on a qoq basis. Further, there was a
sharp increase in delinquencies partly due to system-based recognition of NPLs. We cut our
earnings as we increase provision for bad loans. Our FY12F ROA of 0.8% is the lowest among
peers we cover. Downgrade to Hold.
1QFY12: sharp increase in cost of funds, sharp increase in delinquency
On an absolute basis, interest costs increased 20% qoq (+56% yoy) while interest income
increased 5.0% qoq (+38% yoy). This was largely due to the sharp fall in domestic net interest
margin (NIM) to 2.43% (3.38% in 4QFY11 and 3.29% in 1QFY11, see table 2). The foreign NIM
remained largely stable qoq and yoy. Domestic cost of deposits increased 79bps qoq to 6.87%
(+150bp yoy) while domestic yield on loans increased 17bp qoq to 10.84% (+95bp yoy). Further,
fresh delinquency increased to 100bp of loans (one-year lag basis) compared to 60bp in 4QFY11
and 40bp in 1QFY11. Of the Rs17bn fresh addition to gross NPLs, about Rs8bn was due to
transition to system-based recognition of bad loans.
1QFY12: PPOP growth disappoints and so does the PAT
Net interest income (NII) was up 5.8% yoy (-20% qoq) on the back of 22% yoy loan growth (flat
qoq, see chart 1). Note, NII includes Rs1.7bn interest on income tax refund in 1QFY12. Core fee
income was up 9.5% yoy. Treasury gains were 13.2% of PBT in 1QFY12 compared to 9.8% in
1QFY11. Operating income before provisions (PPOP) fell 1% yoy. Asset quality slipped and thus
provision for bad loans was about 22bp of loans this quarter compared to 17bp in 1QFY11 (22bp
in 4QFY11).
Capital raising likely in FY12
The reported tier-1 capital was at 8.02% as of June 2011 (excluding 1QFY12 net profits). Given
management’s target of maintaining tier 1 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 estimates, downgrade to Hold
We cut FY12-13F earnings by about 12% and 8%, respectively, largely driven by an increase in
provision for bad loans. This drives our target price lower to Rs400 (from Rs463). We downgrade
our rating to Hold. A key risk to our earnings forecasts and target price is a sharp improvement in
asset quality leading to a lower-than-expected provision for bad loans.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BOI disappointed on NIM as cost of funds increased sharply on a qoq basis. Further, there was a
sharp increase in delinquencies partly due to system-based recognition of NPLs. We cut our
earnings as we increase provision for bad loans. Our FY12F ROA of 0.8% is the lowest among
peers we cover. Downgrade to Hold.
1QFY12: sharp increase in cost of funds, sharp increase in delinquency
On an absolute basis, interest costs increased 20% qoq (+56% yoy) while interest income
increased 5.0% qoq (+38% yoy). This was largely due to the sharp fall in domestic net interest
margin (NIM) to 2.43% (3.38% in 4QFY11 and 3.29% in 1QFY11, see table 2). The foreign NIM
remained largely stable qoq and yoy. Domestic cost of deposits increased 79bps qoq to 6.87%
(+150bp yoy) while domestic yield on loans increased 17bp qoq to 10.84% (+95bp yoy). Further,
fresh delinquency increased to 100bp of loans (one-year lag basis) compared to 60bp in 4QFY11
and 40bp in 1QFY11. Of the Rs17bn fresh addition to gross NPLs, about Rs8bn was due to
transition to system-based recognition of bad loans.
1QFY12: PPOP growth disappoints and so does the PAT
Net interest income (NII) was up 5.8% yoy (-20% qoq) on the back of 22% yoy loan growth (flat
qoq, see chart 1). Note, NII includes Rs1.7bn interest on income tax refund in 1QFY12. Core fee
income was up 9.5% yoy. Treasury gains were 13.2% of PBT in 1QFY12 compared to 9.8% in
1QFY11. Operating income before provisions (PPOP) fell 1% yoy. Asset quality slipped and thus
provision for bad loans was about 22bp of loans this quarter compared to 17bp in 1QFY11 (22bp
in 4QFY11).
Capital raising likely in FY12
The reported tier-1 capital was at 8.02% as of June 2011 (excluding 1QFY12 net profits). Given
management’s target of maintaining tier 1 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 estimates, downgrade to Hold
We cut FY12-13F earnings by about 12% and 8%, respectively, largely driven by an increase in
provision for bad loans. This drives our target price lower to Rs400 (from Rs463). We downgrade
our rating to Hold. A key risk to our earnings forecasts and target price is a sharp improvement in
asset quality leading to a lower-than-expected provision for bad loans.
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