Sell Bank of India; target of Rs 270: KRChoksey

KRChoksey is bearish on Bank of India and has recommended sell rating on the stock with a target of Rs 270 in its October 31, 2012 research report.

“BOI continued to post volatile net earnings of Rs 302 crore, down 38.5% y-o-y & down 66.0% q-o-q, below our expectation. NII grew strongly 15.3% y-o-y & 7.5% q-o-q aided by NIM expansion (8bps Q-o-Q). Core fee income decreased 11.7% y-o-y & 5.1% q-o-q reflecting balance sheet slowdown and fall in fresh sanction. Non interest income went up 6.2% y-o-y /6.3% q-o-q supported by steady core fee income, higher trading gains and forex income. Provisions went up 228.7% q/q to Rs1552 crs, mainly due to higher loan loss provision on incremental slippages. The bank has restructured loans amounting to Rs550crs (0.2% of loans). Higher provision on incremental slippages has eaten operating profits, resulting into weak reported earnings. Asset quality continued to deteriorate as Gross & Net NPAs have increased 32% Q-o-Q & 18% Q-o-Q respectively. Loan and deposit growth were 20.0% y-o-y and 11.2% y-o-y respectively. Downgrade to SELL.”

“NII slowed down to 15.3% y-o-y / down 7.5% q-o-q mainly due to sequential NIM improvement 8bps q-o-q. NIMs increased 8bps q-o-q to 2.35% primarily attributable to domestic NIM expansion (14bps Q-o-Q) and overseas NIM stood at 1.3%. We believe net interest margin remain under pressure and unlikely to improve on the back continuous pricing pressure in retail and subdued industrial credit demand. We expect NII to grow at CAGR 16.9% over FY12-14e driven by 16.0% CAGR in loan book. Non- interest income increased 6.0% y-o-y and 6% q-o-q to Rs894 crore driven by stronger forex income (up 97% q-o-q). Trading gains increased to Rs103 crore, contributing 5.6% to PPP. Recovery from written off accounts down 30% Q-o-Q Rs 167 crore. We are factoring 7.5% CAGR in fee income over FY12- FY14e. Non- interest income increased 6.0% y-o-y and 6% q-o-q to Rs894 crore driven by stronger forex income (up 97% q-o-q). Trading gains increased to Rs103 crore, contributing 5.6% to PPP. Recovery from written off accounts down 30% Q-o-Q Rs 167 crore. We are factoring 7.5% CAGR in fee income over FY12- FY14e.”

“BOI has reported weak net earnings along with sharp deterioration in asset quality during the quarter. The bank has been quite volatile in terms of earning growth and asset quality trend in last two years. Given the higher exposure to large corporate and SME, we believe the bank will continue to see pressure on asset quality and report weak core operating earnings. We have cut our FY13 & FY14 earnings estimates by 4.6% & 5.8% respectively factoring higher slippages & credit costs. The stock is trading at 0.7x FY14 adjusted book, 4.1x FY14e earnings and 3.9% dividend yield, reflecting continuous asset quality concerns and weak core earnings. We recommend SELL rating on the stock with target price of Rs270,” says KRChoksey research report.

FIIs holding more than 30% in Indian cos

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