Bank of India

India Infoline News Service | Mumbai |

BOI’s persistent outperformance to peers on asset quality front is translating into valuation catch-up with the large PSU banks.

CMP Rs242, Target Rs265, Upside 9.5%

Relatively better asset quality trends to continue in Q3 FY14

Bank of India is likely to deliver yet another quarter of resilient asset quality performance. Slippages in Q3 FY14 are likely to be near or lower than Q2 FY14 level of Rs14.5bn marking fifth consecutive quarter of restrained stress (annualized delinquencies have ranged 1.5-2.6%) despite extremely challenging macro. In fact, gross NPL ratio is expected to improve on sequential basis further aided by strong recoveries/upgradations, sale of NPAs to ARCs (~Rs12bn) and brisk credit growth. Restructuring is estimated to be in-line with previous quarters (Rs8-9bn) but the stock is expected to decline with 50% of restructured SEB exposure being converted into bonds as per the package.


Earnings performance to be sequentially much better

Our reworked estimate of BOI’s Q3 FY14 net profit stands at Rs7.3bn (upgraded from Rs5.8bn in recently released preview) which represents 17% jump qoq. Domestic loan book growth has been strong for the bank driven by multiple segments and sectors. Blended NIM is expected to remain stable at 2.4%. With exposure to bulk deposits at meager 4-5%, overall cost of deposits is unlikely to have been significantly impacted by the spike in wholesale rates. Improved fee growth witnessed during Q2 FY14 is likely to sustain in Q3 FY14. We estimate credit cost to be sequentially lower at annualized 90-100bps with continuance of manageable slippages and a relatively better provisioning cover (63% as at Sept-end). Unlike peers, BOI was carrying much lower (~Rs1.8bn) unamortized MTM losses on its AFS/HFT investments portfolio as at Sept-end which the bank may choose to provide entirely in Q4 FY14.

Valuation recovery to continue

BOI’s persistent outperformance to peers on asset quality front is translating into valuation catch-up with the large PSU banks. In our view, the bank’s valuation would continue to witness an early cyclical recovery than the overall space. The likelihood of a resilient Q3 FY14 performance should support stock price in the near term.


Financial summary
Y/e 31 Mar (Rs m)
FY12
FY13
FY14E
FY15E
Total operating income
116,346
127,900
148,288
175,100
Yoy growth (%)
11.3
9.9
15.9
18.1
Operating profit (pre-provisions)
66,939
74,585
82,177
97,750
Net profit
26,775
27,493
29,559
36,563
yoy growth (%)
7.6
2.7
7.5
23.7

 
 
 
 
EPS (Rs)
46.6
46.1
46.0
56.9
Adj. BVPS (Rs)
279.7
281.4
299.8
329.1
P/E (x)
5.2
5.3
5.3
4.3
P/Adj.BV (x)
0.9
0.9
0.8
0.7
ROE (%)
15.0
12.9
12.1
13.3
ROA (%)
0.7
0.7
0.6
0.6
Source: Company, India Infoline Research
BSE 174.40 [4.95] ([2.76]%)
NSE 174.10 [5.30] ([2.95]%)

***Note: This is a NSE Chart

 

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