Buy Bank of Maharashtra; target of Rs 70: KRChoksey

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Buy Bank of Maharashtra; target of Rs 70: KRChoksey

KRChoksey is bullish on Bank of Maharashtra and has recommended buy rating on the stock with a target of Rs 70 in its June 10, 2011 research report.

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KRChoksey is bullish on Bank of Maharashtra and has recommended buy rating on the stock with a target of Rs 70 in its June 10, 2011 research report.

"Bank of Maharashtra`s returns profile has, in the past, been depressed primarily because of poor asset quality and higher employee base. Despite a strong franchise base and 24% CAGR in loan book over FYFY05-11, NII grew only by 14% CAGR partly because of lower exposure to high yielding segments. We believe that most of the pains vis-à-vis asset quality and operating leverage are behind us as the bank is set to return to a better growth trajectory with improving operating metrics. We also believe the bank is at an inflection point as asset quality is set to be under control while impact of higher employee cost will not have a material impact on ROE. The GOI has increased its stake in the Bank with an infusion of Rs. 352 crores at Rs. 68.76 per share. This is at a substantial premium to the CMP, leaving the Bank with a comfortable Capital Adequacy Ratio. We expect net interest income to increase by 19% CAGR over FY11-13e on the back of 22% loan CAGR and stable margin during the period. As a result, ROA and ROE will improve significantly to 0.9% and 19% levels by FY13."

"The bank is making special efforts to enhance its lending to high yielding MSME and retail sector which is visible in margins and growth. The SME loans have grown by 42.4% CAGR over FY08-11 increasing its share in total loan book from 9.0% to 16.3%. While growth in the retail segment has been tepid it is expected to be a main growth driver for the bank, going forward, as there is enough headroom to grow from just 11.7% share in total loan book. Further, in order to further deepen its penetration in retail segment, bank has increased its product offerings such as gold coins, credit cards, top up loans, gold loans, among others. The Banks CD ratio at about 70% is below the industry average. This provides leeway for lending growth at currently higher deployment rates."

"The return ratios have been consistently deteriorating since FY07; ROA and ROE stood at 0.45% and 11.2% respectively in FY11. However, they are likely to improve to 0.9% and 19% levels by FY13. Currently the stock is quoting 0.85 P/B on FY13e book (adjusted) against historical forward mean of 0.89x. Considering significant improvement in FY12 due to strong growth in loan, stable margins, operating leverage playing out, controlled opex and improving asset quality, we assign BUY rating with a target price of Rs 70 giving un upside potential of 19.7%," says KRChoksey research report.

Public holding more than 90% in Indian cos

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To read the full report click on the attachment