>BANK OF INDIA

• Bank of India’s results were ahead of our as well as the Street’s estimates. Its net profit grew 9.5% year on year (YoY) (45.7% quarter on quarter [QoQ]) to Rs715 crore. The net profit growth was driven by a better growth in the net interest income (NII) and a sequential decline in the provision expenses.

• The net interest income increased by 4% YoY (8.6% QoQ) to Rs2,061 crore. The growth in the NII was driven by a sequential expansion in margins (3.55% compared to 3.44% in Q2FY2012) and a stronger growth in advances (7.5% QoQ).

• The non interest income expanded by a healthy rate of 31% YoY mainly driven by better treasury gains and higher recovery from written off accounts. The fee income grew at a modest rate of 12.9% YoY.

• The asset quality improved on a sequential basis as gross and net non performing assets (NPAs) declined to 2.74% and 1.78% respectively (compared to 3.02% and 1.98% in Q2FY2012). However the restructured advances increased to 5.9% from 5.2% in Q2FY2012.

Valuations
Bank of India posted relatively better numbers for Q2FY2012, led by an increase in margins and decline in provision expenses. Though the slippages have declined in the quarter gone by, the higher proportion of stressed assets (8.64% of advances) and a higher rate of slippages (23.3%) from restructured accounts coupled with lower provision coverage ratio are a cause of concern. Further, the growth in business is likely to slow down (estimated at 16% compounded annual growth rate [CAGR] over FY2011-13) which would impact the growth in NII and earnings. We revise our price target to Rs335 (0.9x FY2013 book value [BV]). We maintain our Reduce rating on the stock.


RISH TRADER