Buy Bank of Maharashtra; target Rs 52: Angel Broking

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Buy Bank of Maharashtra; target Rs 52: Angel Broking

Angel Broking is bullish on Bank of Maharashtra (BOM) and has recommended buy rating on the stock with a target price of Rs 52 in its December 15, 2011 research report.

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Angel Broking is bullish on Bank of Maharashtra (BOM) and has recommended buy rating on the stock with a target price of Rs 52 in its December 15, 2011 research report.

"Bank of Maharashtra (BOM) has progressively been able to improve its asset quality over the past one year on back of conservative credit growth, moderate yield loan book and recoveries post CBS implementation. BOMs credit book is relatively more diversified than the other regional banks with exposure to any industry not above 4% except power sector, (13.0% of overall gross advances), of which 71% is towards State electricity boards (SEB) lending. Also, the management initiatives in the form of discontinuing take out financing, stopping loan disbursements in education sector and sugarcane projects (except entrepreneurial ventures), which traditionally have brought upon higher delinquencies for the bank, we believe should keep the bank's asset quality relatively healthier to peers."

"The bank would be restructuring ~Rs 1,200cr of loans to a couple of SEBs in 2HFY2012. While around Rs 440cr is expected to be restructured in 3QFY2012, the rest could be restructured in the subsequent quarters. The management also stated that loans to all other SEBs are performing and they do not expect any kind of stress arising from these exposures. Also the management clarified that there would be no NPV loss on the restructured loans as interest rates will not be lowered down on these loans. The management expect a quarterly run-rate in slippages of ~Rs 125cr and expect relatively higher recoveries over the next 2 quarters, leading to ~Rs 100cr decline in the absolute gross NPA levels."

"The management sounded confident of receiving its full request of Rs 860cr capital from the government. The capital infusion though will be book dilutive, should help in shoring up the bank's tier-I ratio above 8% by FY2013. At the CMP, the stock is trading at attractive valuations, in our view, of 0.6x FY2013E ABV vs. its five-year range of 0.7-1.2x and median of 0.9x. On the back of relatively better NIM, moderate fee income and relatively healthy asset quality, we expect the bank to deliver healthy 25.2% earnings CAGR over FY2011-13E. We value the stock at 0.8x and hence recommend a Buy rating with a target price of Rs 52 implying an upside of 18.3% from current levels," says Angel Broking research report.

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To read the full report click on the attachment