Reduce Bank of India; target of Rs 320: Emkay

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Reduce Bank of India; target of Rs 320: Emkay

Emkay Global Financial Services is bearish on Bank of India (BOI) and has recommended reduce rating on the stock with a target of Rs 320 in its January 27, 2012 research report.

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Emkay Global Financial Services is bearish on Bank of India (BOI) and has recommended reduce rating on the stock with a target of Rs 320 in its January 27, 2012 research report.

"Bank of India (BOI)'s Q3FY12 NII at Rs20.7bn was marginally above our estimates. NII growth at 4.1% yoy was led by 6% qoq growth in loan portfolio and 13bps yoy improvement in NIMs Further sequential doubling of in recoveries aided net profit growth of 45% qoq to Rs7.2bn. The slippage came off sharply to Rs5.2bn for the quarter. However, we believe that these may also be after netting off the recoveries from the slippages of H1FY12. The actual slippages for the quarter may have been Rs10bn. These also include Rs5.1bn from one single account in aviation. Though, the NPA profile improved, the restructuring took off all the sheen with the advances worth Rs17.6bn (ex-GTL) being restructured during the quarter. Thus, the stressed assets (net NPLs+restr assets) went up to 7.7% of advances vs 7.2% in Q2FY12."

"Bank of India has been grappling with concerns over its asset quality for long now. During Q3FY12, the slippages concerns seem abated for while. But still with low PCR (60%), we would expect BOI to run a higher credit cost at average 85bps over FY11-13E, thereby dragging RoAs. However, we have upgraded our earnings estimates by 14.7% in FY12E and 5.8% in FY13E to take into account lower than expected provisioning done over M9FY12 (despite high NPL ratios). We haven't changed our slippages or recoveries estimates and hence, there is no change in the ABV estimates. The stock is currently quoting at 1.4x FY12E/1.1x FY13E ABV. We believe that the stock has run up ahead of the fundamentals and is quoting at the same valuations and BOB and PNB. We downgrade the stock to REDUCE with target price to Rs320."

"We believe upside risk to our estimates could arise (1) if there is lowering of pressure on growth if Net NPLs / net worth ratio (21%) comes down and (2) if credit costs continue to trail the slippage rate though not warranted. Also, any surprise in form of lower slippages / improved recoveries will act as a positive for the bank and take the valuations upwards," says Emkay Global Financial Services research report.

FIIs holding more than 30% in Indian cos

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To read the full report click on the attachment