Motilal Oswal neutral on Bank of India

Motilal Oswal has maintained neutral rating on Bank of India with a target of Rs 320 in its October 30, 2012 research report.

“Bank of India’s (BoI) 2QFY13 reported PAT declined 39% YoY to INR3.1b (57% below our estimate). Higher slippages (INR27.3b) led to an increase in credit cost (2.3% v/s 0.9% in 1QFY13) and impacted NII growth (8% below est), leading to underperformance. Profitability would have deteriorated further but the nil tax rate and 10% lowerthan- expected opex provided some cushion.”

“Gross slippages in 2QFY13 were INR27.3b (v/s ~INR17.5b in 1QFY13), of which 70% came from mid and large corporate segment. Net slippages increased ~1.9x QoQ to INR22.1b.  In 2QFY13, BoI restructured loans worth INR8.1b (provided INR1b), of which INR2.6b was for existing NPAs.  Global NIMs improved 15bp QoQ (v/s expectation of 25bp) to 2.4%. Domestic NIMs improved to 2.84% (+28bp QoQ), but the 23bp decline in international NIMs to 1.2% dragged overall NIMs lower.”

“BoI’s loans grew in the perceived riskier segments such as infrastructure (44% YoY) and gems & jewelry (27% YoY). We do not see any respite in asset quality given the current challenging macro-environment. Other concerns for the bank are (a) top management change in CY12 and (b) lower capitalization, with core Tier I at 7.7%. While valuations have corrected, we believe the higher stress on asset quality would keep it under check. We reduce our earnings estimate by 22% and 18% for FY13/14 to factor the higher credit cost and lower-than-expected margins performance. We expect BoI’s RoA to be ~0.6% for FY13/14 and RoE to be 12/14%. The bank is expected to report an EPS of INR42 in FY13 and INR53 in FY14; BV is expected to be INR361 in FY13 and INR405 in FY14. The stock trades at 0.8x FY13 BV and 0.7x FY14 BV. Maintain neutral,” says Motilal Oswal research report.

Shares held by Central Governments/State Governments

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More