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UBS Investment Research
Bank of India
N IM falls, NPLs rise
Event: Weak Q1 earnings
Bank of India reported net income of Rs5.2bn (-29% y/y, +5% q/q) below UBS-e
of Rs6bn (Consensus estimates was at Rs7.1bn). Sharp NIM decline and
continuation in high NPL addition led to the miss. Key highlights: 1) NII came at
Rs18.4bn (+6% y/y) as NIMs declined 75bps (q/q) to 2.19%. 2) Slippages
increased to Rs16bn (3% of loans) and provision coverage declined to 67% (vs
73% in Q4). 3) Rise in NPLs with gross and net NPA at 2.7% (+490bps q/q) and
1.3% (+220bps q/q) respectively. 4) Loan growth remained flat q/q and 22% (y/y).
Impact: Reduce earnings estimates by 13/7% in FY12/13E, Cut PT by 6%
We cut our earnings estimate for FY12 by 13% and FY13 by 7% on account of
lower NIM estimate and high slippages. We still expect overall provisions in FY12
to be lower than FY11 and therefore expect 17% growth in earnings in FY12. We
build in 30 bps decline in FY12 NIMs compared to FY11. Consequently we also
revise down our PT by 6% to Rs 400 on lower FY12/13 numbers.
Action: Valuation fair considering 0.8% RoA
In our view, volatility in asset quality and poor profitability warrants a discount to
peer banks which have better profitability (RoA>1%) and higher returns
(RoE>20%). NPL additions (adjusting for system transition) remain high at 1.6%.
Slower credit growth and weak asset quality are key overhangs on the stock.
Valuation: Sell, PT Rs400
We value the stock using residual income method at Rs400, which implies 1x FY
13E book and 6x FY13E earnings.
Bank of India
Bank of India is a public bank with 3,125 branches, including 28 overseas
branches and offices. The company has opened representative offices in London,
New York, Paris, Tokyo, Hong Kong and Singapore. The government of India
holds a 64.47% stake in the bank. The international business accounts for around
17.82% of the bank's total business.
Statement of Risk
We believe a sustained economic slowdown will impact the banking and finance
sector on several fronts: lead to a slowdown in credit; increase NPL risk; impact
fee income; and exert pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bank of India
N IM falls, NPLs rise
Event: Weak Q1 earnings
Bank of India reported net income of Rs5.2bn (-29% y/y, +5% q/q) below UBS-e
of Rs6bn (Consensus estimates was at Rs7.1bn). Sharp NIM decline and
continuation in high NPL addition led to the miss. Key highlights: 1) NII came at
Rs18.4bn (+6% y/y) as NIMs declined 75bps (q/q) to 2.19%. 2) Slippages
increased to Rs16bn (3% of loans) and provision coverage declined to 67% (vs
73% in Q4). 3) Rise in NPLs with gross and net NPA at 2.7% (+490bps q/q) and
1.3% (+220bps q/q) respectively. 4) Loan growth remained flat q/q and 22% (y/y).
Impact: Reduce earnings estimates by 13/7% in FY12/13E, Cut PT by 6%
We cut our earnings estimate for FY12 by 13% and FY13 by 7% on account of
lower NIM estimate and high slippages. We still expect overall provisions in FY12
to be lower than FY11 and therefore expect 17% growth in earnings in FY12. We
build in 30 bps decline in FY12 NIMs compared to FY11. Consequently we also
revise down our PT by 6% to Rs 400 on lower FY12/13 numbers.
Action: Valuation fair considering 0.8% RoA
In our view, volatility in asset quality and poor profitability warrants a discount to
peer banks which have better profitability (RoA>1%) and higher returns
(RoE>20%). NPL additions (adjusting for system transition) remain high at 1.6%.
Slower credit growth and weak asset quality are key overhangs on the stock.
Valuation: Sell, PT Rs400
We value the stock using residual income method at Rs400, which implies 1x FY
13E book and 6x FY13E earnings.
Bank of India
Bank of India is a public bank with 3,125 branches, including 28 overseas
branches and offices. The company has opened representative offices in London,
New York, Paris, Tokyo, Hong Kong and Singapore. The government of India
holds a 64.47% stake in the bank. The international business accounts for around
17.82% of the bank's total business.
Statement of Risk
We believe a sustained economic slowdown will impact the banking and finance
sector on several fronts: lead to a slowdown in credit; increase NPL risk; impact
fee income; and exert pressure on NIM.
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