Buy Indian Overseas Bank; target of Rs 159: Dolat Capital

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Buy Indian Overseas Bank; target of Rs 159: Dolat Capital

Dolat Capital is bullish on Indian Overseas Bank (IOB) and has recommended buy rating on the stock with a target of Rs 159 in its October 31, 2011 research report.

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Dolat Capital is bullish on Indian Overseas Bank (IOB) and has recommended buy rating on the stock with a target of Rs 159 in its October 31, 2011 research report.

"In Q2 FY12, Indian Overseas Bank's (IOB) NII grew 32% YoY to Rs 12.7bn- 3% higher than our estimate of Rs 12.3bn. Operating profit grew 47% YoY to Rs 9bn, as against our estimate of Rs  8bn. Much higher NPL provisioning dented bottomline. The bank reported Rs 2.1bn compared to our estimate of Rs 3.2bn and consensus estimate of Rs 2.6bn. IOB reported higher business growth than our estimate and maintained margin at 2.86%. Non-interest income was much better than our expectation due to robust fee income, much higher treasury income and continuity in cash recoveries. An unexpected drop in bottomline came mainly due to the higher NPL provisioning caused by the almost doubling of gross slippages ratio to 0.92% (0.48% in Q1 FY12). IOB's credit cost inched up to 1.72% from 1.56% in Q1 FY12. Though considering the increase in slippage ratio, NPL provisioning was lower, reflecting in the higher net NPA ratio."

"We revise our earnings estimates to factor in higher business expansion, better fee income and sharp rise in delinquencies. We reduce our earnings estimates by 33% and 12% for FY11 and FY13 and reduce our target price by 16% to Rs 159 at 1.3x and 1.17x of adjusted book value (ABV) FY12 and FY13. We reiterate our Buy rating on the stock," says Dolat Capital research report.  

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