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Bank of India Underweight
BOI.BO, BOI IN
Still vulnerable, not cheap enough - maintain UW
BOI’s 1Q12 numbers were weak, with a 19% miss on PAT (down 29%
y/y). The weakness was all-around: a) ~37bp q/q NIM compression, b)
3.6% gross delinquency driving a 47% y/y provision growth and c) anemic
non-interest income growth (13% y/y). We expect continued NIM NPL
pressures, and cut our PT by 11% to Rs 360. Retain UW.
NIM drops to 2.4%: Management attributed the 37bp q/q NIM drop to
savings deposit rate hikes, sticky loan yields and adjusting for one-off
NII hit from high delinquencies. We believe the high term deposit costs
were also a factor, and this will persist as the marginal and average
converge. We see downside to our margin assumptions.
Delinquencies spike: Gross delinquencies, at 3.6% (up 120 bps q/q)
were only partially driven by the one-off transition to system-driven
NPL recognition (~Rs8bn). The bank continues to see broad-based
delinquencies across its portfolio, including Rs 5bn from its restructured
portfolio. We think its high exposures to real estate, infrastructure and
Agri makes it vulnerable to further NPL slippage.
Other points of stress: Non-interest income growth was anemic at 13%
y/y, and cost-income rose to 44%, with opex growth fairly elevated at
21%. The key miss was NII – the other points of stress were anticipated.
Estimates still vulnerable, cutting PT: Our EPS forecast (9% below
consensus) is still vulnerable on NIMs and NPLs. We cut our PT by
11% to capture this risk and capital stress (our Rs 25bn issuance
assumption at Rs 410 is at risk) – the main tweak in our assumption is a
downgrade in sustainable ROE from 16.0% to 14.8%.
BOI may look cheap (1.2x PBV, FY12E) but a vulnerable balance sheet
– and the spectre of capital stress negatively skews risk-reward. We
maintain
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank of India Underweight
BOI.BO, BOI IN
Still vulnerable, not cheap enough - maintain UW
BOI’s 1Q12 numbers were weak, with a 19% miss on PAT (down 29%
y/y). The weakness was all-around: a) ~37bp q/q NIM compression, b)
3.6% gross delinquency driving a 47% y/y provision growth and c) anemic
non-interest income growth (13% y/y). We expect continued NIM NPL
pressures, and cut our PT by 11% to Rs 360. Retain UW.
NIM drops to 2.4%: Management attributed the 37bp q/q NIM drop to
savings deposit rate hikes, sticky loan yields and adjusting for one-off
NII hit from high delinquencies. We believe the high term deposit costs
were also a factor, and this will persist as the marginal and average
converge. We see downside to our margin assumptions.
Delinquencies spike: Gross delinquencies, at 3.6% (up 120 bps q/q)
were only partially driven by the one-off transition to system-driven
NPL recognition (~Rs8bn). The bank continues to see broad-based
delinquencies across its portfolio, including Rs 5bn from its restructured
portfolio. We think its high exposures to real estate, infrastructure and
Agri makes it vulnerable to further NPL slippage.
Other points of stress: Non-interest income growth was anemic at 13%
y/y, and cost-income rose to 44%, with opex growth fairly elevated at
21%. The key miss was NII – the other points of stress were anticipated.
Estimates still vulnerable, cutting PT: Our EPS forecast (9% below
consensus) is still vulnerable on NIMs and NPLs. We cut our PT by
11% to capture this risk and capital stress (our Rs 25bn issuance
assumption at Rs 410 is at risk) – the main tweak in our assumption is a
downgrade in sustainable ROE from 16.0% to 14.8%.
BOI may look cheap (1.2x PBV, FY12E) but a vulnerable balance sheet
– and the spectre of capital stress negatively skews risk-reward. We
maintain
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