Buy Bank of India; target of Rs 353: Angel Broking

Angel Broking`s research report on Bank of India

“For 2QFY2015, Bank of India (BOI) reported a PAT growth of 26.4% yoy to Rs786cr, mainly on account of 19.9% yoy growth in NII and decline in provisions by 21.8% yoy. During 2QFY2015, the bank registered a strong 18.3% yoy growth in its overall advances, aided by a robust growth in its international loan book, which grew by 25.7% yoy. Domestic advances grew by 15.4%, led by agriculture, MSME and retail which grew by 23.7%, 22.4% and 17.96%, respectively. In the retail portfolio, 62% of loans are secured by mortgage as compared to 55% in 2QFY2014. Deposits for the bank also grew at a strong pace of 19.9% yoy. Domestic CASA deposits grew at a moderate pace of 12.3% yoy, with domestic CASA ratio at 27.7% as compared to 29.7% in 2QFY2014. Domestic NIMs for the bank improved sequentially by 28bp to 2.73% due to higher recoveries, which resulted in increase in yield on advances. Global NIMs improved 15bp qoq to 2.31%. The bank’s non-interest income (excluding treasury) de-grew by 17.9% yoy while the fee income grew 13.1% yoy. The Management has guided at the fee income growing by 20% yoy in FY2015.” “The bank reported sequentially lower slippages during the quarter. The annualized slippage ratio for the bank came in at 3.2% as compared to 4.1% in 1QFY2015. Recoveries/upgrades during the quarter came in higher at Rs643cr as compared to Rs426cr in 2QFY2014 but were lower as compared to Rs1,203cr in 1QFY2015. The Gross NPA ratio increased from 3.28% in 1QFY2015 to 3.54% in 2QFY2015. The Management has guided at the Gross NPA ratio being in the range of 3-3.15% for FY2015 on account of better recovery and upgrades. During the quarter, the bank restructured advances worth Rs1,358cr, thereby taking its total standard restructured book to Rs11,738cr (2.94% of advances). Going ahead, as per the Management, the restructuring pipeline stands around Rs1,500cr, largely contributed by the EPC segment.” “BOI is expected to be one of the beneficiaries of an improved economic and policy environment. Further with inflation consistently declining, we expect interest rates to decline. This is expected to improve the operating performance of BOI on all fronts including credit growth, asset quality and treasury gains. Inspite of the recent run up in the stock price, the bank is trading at a relatively cheap valuation of 0.6x FY2016E ABV. We recommend a Buy rating on the stock with a target price of Rs353,” says Angel Broking research report.  

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