Accumulate Bank of India; target of Rs 270: KRChoksey

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KRChoksey's report on Bank Of India (BOI)

Bank of India reported a poor set of numbers with PAT plummeting to Rs. 173 crs, down by 70.4% Y-o-Y and 77.9% Q-o-Q. Key highlights: 1) NII depicted a slow growth of 2.2% Y-o-Y and declined by 8.3% Q-o-Q mainly on the back of lower yields, while loan growth at 14.5% Y-o-Y provided some support 2) Non-interest income registered a slow growth of 7.3% Q-o-Q and declined by 1.6% Y-o-Y supported by higher gains from sale of investments (+152.0% y/y; +109.2% q/q), while core fee income remained subdued (+6.8% y/y; -4.8% q/q) and recoveries and FX income depicted a decline 3) OPEX grew by 19.3% Y-o-Y and 4.9% Q-o-Q due to increase in employee related provisions 4) Loan loss provision increased 14.1% Q-o-Q and 68.9% Y-o-Y due to higher stress on the book. 5) Sequentially, Slippages run rate increased to Rs. 3,356 crs compared to Rs. 2,971 crs in Q2FY15, +13.0% Q-o-Q. Gross and Net NPA ratios stood at 4.1% & 2.5% respectively with PCR 56.6%. 6) Loan book and deposit growth were 14.5% Y-o-Y and 16.8% Y-o-Y respectively. CASA ratio remained fairly stable at 28.7% driven by 9.8% Y-o-Y growth in saving deposits.

Valuation & Recommendation: "The bank has been quite volatile in terms of earning and asset quality trends in last three & half years. Weak revenue growth momentum, higher OPEX growth & NPA provisions resulting into weak reported net earnings. We believe some stability in asset quality trend and improving capital position level is the key valuation catalyst going ahead. At Rs. 236 the stock is trading at 0.6x FY17E adjusted book, 3.5x FY17E earnings. We recommend “ACCUMULATE” rating on the stock with target price of Rs 270", says KRChoksey research report.

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