Buy Bank of Maharashtra: Arihant Capital Markets

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Buy Bank of Maharashtra: Arihant Capital Markets

Arihant capital markets is bullish on Bank of Maharashtra (BoM) and has recommended buy rating on the stock with a target price of Rs 79 in its January 27, 2012 research report.

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Arihant Capital Markets is bullish on Bank of Maharashtra (BoM) and has recommended buy rating on the stock with a target price of Rs 79, in its January 27, 2012 research report.

"Bank of Maharashtra (BoM)  maintained a steady asset quality over the past four years with GNPA in the range of 2.29% -2.96%. This is despite the economic slowdown and shift to CBS based NPA recognition. In fact FY12 has seen a steady and continuous fall down to 2.06% by December 2011. As ~65% of the outstanding NPA pertain to small loans (> Rs 10 lakh), bank has set up special Micro-Asset Recovery Cells to ensure speedy resolution for the problem and has received good response. As a healthy cushion, PCR of the bank stands at 85% while nearly 75% of the loan book is secured. Despite a well diversified portfolio, the coming quarters may hold some risk as bank has sizeable exposure to SME, MSME and Agriculture (in all ~27% of the book), though the bank is confident and states that 99% of the SME loans are not facing any major slowdown problem. The exposure to SEB loans stands at ~9.2% of the total loan book and has started showing some stress with commencement of restructuring (total o/s restructured book ~6.2%)."

"Bank has had a subdued core income growth and volatile net profit growth in past. While with introduction of base rate the core income growth has seen a major improvement in core income, the completion of additional provisioning pressure due to counter cyclical RBI norms, employee wage revision along with steady asset quality will ensure a marked improvement in the PAT. Amongst a list of 28 banks (private + PSU) increase in Spread of BoM has been highest at 116 bps followed by Allahabad Bank with 83 bps and Yes Bank by 80 bps. The NIM has improved from 2.1% in FY10 to 3% in FY11 to 3.24% in Q2FY12. To sustain this bank has been consciously working on the strategy to reduce the bulk deposit which now forms just 8.6% of the total deposits."

"With fundamentals in place we feel that the bank just needs few quarters of consistent performance to give a stronger portrayal, though heavy restructurings muddle the frame. The RoA is yet weak and will require at least 2 years of healthy performance to scale up to 1% from present 0.6%. For this the bank needs to cash on its presence in rich states and bring in more efficiency and improve its fee income. Overall since it has a high Govt holding of 79%, the capital may not be a constraint. We maintain a credit cost of more than 1% in FY13 with FY11-F13E PAT growth of 47%. BoM has underperformed the Bank nifty in last one year and at CMP of Rs 48 is available at a FY13 P/ABV of 0.6x and PE of 3.2x! We value the bank on average of Gordon growth (RoE 14%, COE 14%, G 5%) and long term average P/BV (0.9x) and arrive at a price target of Rs 79 over next one year. Maintain Buy," says Arihant capital markets research report.

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To read the full report click on the attachment