Reduce Bank of India; target of Rs 250: Dolat Capital

“Bank of India’s (BoI) NII grew 11% YoY to Rs 20.4bn- 14% lesser than our estimates of Rs 23.8bn. Margin declined sharply by 59bps to 2.27% from 2.86% in Q4 FY12 due to 88bps QoQ decline in yield on advances to 8.85% and higher liability cost. BoI’s non-interest income recorded 27.4% YoY growth to Rs 8.4bn (primarily, led by higher recoveries) and moderate increase in expenses lifted operating profit to Rs 16.7bn (20% YoY growth) compared to our estimates of Rs 17.8bn. Net profit grew by 71.5% YoY to Rs 8.9bn (Dolat est: Rs 8bn, consensus est: Rs 7.8bn) mainly due to write-back of investment depreciation and lesser tax provisioning.”

“BoI’s asset quality deteriorated by rise in gross and net NPA ratios to 2.56% and 1.69% from 2.34% and 1.47% respectively in Q4 FY12. Higher provisioning though not adequate as against the rise in NPA led to decline in provision coverage ratio to 60.9% from 64.2% in Q4 FY12. As on end-Q1 FY13, the outstanding restructured loan book has increased to Rs 205.9bn from 142bn in end-Q4 FY12. Considering concerns over bank’s margin and asset quality, we revise our FY13 and FY14 earnings estimates downward by 24.8% and 30.7% respectively and reduce the target price by 39% to Rs 250. We downgrade our stock rating to Reduce from Accumulate with a revised price target of Rs 250. At current price, it quotes at 0.94x and 0.87x ABV FY13 and FY14 respectively; based on our target price, the stock would trade at 0.74x adjusted book value FY14,” says Dolat Capital research report.  

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