Monday, July 30, 2012


Recommendation: Hold
Price target: Rs310
Current market price: Rs291
Price target revised to Rs310
Result highlights
  • Bank of India (BoI)?s Q1FY2013 results were ahead of our estimates as the earnings of the bank grew by 71.5% year on year (YoY; -6.9% quarter on quarter [QoQ]) to Rs888 crore led by a decline in the provision expenses and a higher recovery from written off accounts.
  • The net interest income (NII) growth came in below expectations as it grew by 11% YoY (-18.3% QoQ) to Rs2,044 crore led by a sharp decline in the net interest margin (NIM; 2.27% vs 2.86% in Q4FY2012). There was an interest reversal (Rs170 crore) and a reduction in the base rate which contributed to a dip in NIMs.
  • The advances grew 22.9% YoY and 6.2% QoQ led by a sharp growth in the overseas business and retail advances. The deposits grew by 15.7% YoY whereas the current account and savings account (CASA) ratio declined to 31.2% from 32.8% in Q4FY2012.
  • The non-interest income grew by 27.4% YoY (down 13.1% QoQ) aided by a sharp jump in the recovery from the written-off accounts (Rs236 crore vs Rs31 crore in Q1FY2012).
  • The asset quality deteriorated as slippages increased to Rs1,747 crore (2.8% annualised). The bank restructured Rs4,074 crore of advances during the quarter taking the total restructured book to Rs20,590 crore (7.8% of the total advances). 
  • Provision expenses declined by 16.7% YoY (32.7% QoQ) mainly due to reversal of investment provision of Rs136 crore. The provision coverage ratio (PCR) of the bank also declined marginally to 60.9% from 61.2% in Q4FY2012.
Valuation and outlookBoI has reported qualitatively weak results for Q1FY2012 as its NIM tanked and restructured loans increased sharply during the quarter. We therefore reduce our earnings estimates on an average by 3-5% for FY2013, and FY2014. We expect earnings to grow at a compounded annual growth rate (CAGR) of 14% which leads to a return on asset (RoA) of around 0.8%. We therefore revise the target price to Rs310 and maintain our Hold recommendation.