Bank of India's third quarter net profit fell 70.4 percent year-on-year to Rs 173.4 crore on higher provisions and employee expenses. Moreover, slow growth in net interest income and lower other income, operating profit impacted the profitability during the quarter.
The numbers are completely below estimates, says Kajal Gandhi of ICICI Direct.
“The bank has seen a lot of pain earlier and in between too when there was revival 5 to 6 quarters ago most banks did well but Bank of India did not pick up. So there was expectation that incremental slippages may be slightly lower as compared to what the peers are showing,” she said.
Jignesh Shial of IDBI Capital Markets said the bank’s employee cost has risen quite a lot but that was on expected lines. However, the worry remains on the growth and asset quality. “The bank had earlier indicated a 25-30 percent kind of the growth, but has been gradually lowering it down and right now it is 15 percent kind of growth. So that is also kind of worry. We do not see a revival happening very soon,” he said.
Below is the transcript of Kajal Gandhi and Jignesh Shial’s interview with Ekta Batra and Sumaira Abidi on CNBC-TV18.
Ekta: Your first take on these numbers?
Gandhi: Broadly the numbers are completely below estimates. On the NPA front definitely we had not estimated but other numbers are also coming so low. This is completely way beyond expectations.
Ekta: Was your expectation from Bank of India that they might do better than other banks?
Gandhi: It had seen a lot of pain earlier and in between also when the revival was there 5 to 6 quarters ago, most banks had done well but Bank of India did not pick up. So there was expectation that incremental slippages may be slightly lower as compared to what the peers are showing. There was something of that sort definitely expected but then this is a continuous trend and bank has not at all been able to pick up in any time in the quarter.
Latha: What would be your spots of bother?
Shail: As indicated one is the asset quality part which is consistently deteriorating and has the trend also indicates Bank of India had being selling quite a lot of assets to asset restructuring companies (ARC) but the sale to ARC as per the new RBI regulation has already declining so that has actually started impacting Bank of India numbers as well as asset quality is concerned.
Secondly, employee cost we agree has actually risen quite a lot but that is something much on an expected lines but worry had been even on growth side. They had been 25-30 percent kind of the growth they had indicated earlier. They are gradually lowering it down and right now it is 15 percent kind of growth. So that is also kind of worry we do not se a revival happening very soon. So growth and asset quality both remains a concern.
Sumaira: This stock started the year at closer to those Rs 300 levels. It already raised that Rs 70 in just these one and a half months. What would now be your target price on this stock given the way that earnings have shaped up? Not just for this stock but for entire lot?
A: Bank of India (BOI) generally remains one of the cheapest available as far as valuation is concerned. Even if you adjusted with the NPA the adjusted book also still it comes out to 0.6 or 0.7 time price to book at FY16 or even FY17 levels. Looking at the kind of numbers they are delivering and the uncertainty which is still prevailing in the market as well as in the banking industry as a whole wise asset quality part it is means little shaky to predict it. It should remain in the similar range or similar kind of valuations for quite sometime now.
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