Hold Bank of India; target of Rs 298: KRChoksey

KRChoksey's report on Bank Of India (BOI)

"Bank of India reported PAT of Rs. 786 crs supported by healthy NII growth and lower provisions. Key highlights: 1) NII grew 19.9% Y-o-Y aided by 15bps NIM expansion and healthy loan book growth 18.3% Y-o-Y; 2) Pick up in core fee income (up 13% y/y) and robust trading gains (up 151% y/y) supported non interest income. 3) OPEX growth increased sharply 24.7% Y-o-Y and 15.2% Q-o-Q due to increase in employee related provisions. Provisions were increased 8% Q-o-Q to Rs. 963 crs, mainly due to rise in other provisions. The bank has restructured loans amounting to Rs. 1358 crs (0.3% of loans). Sequentially, Slippages run rate moderated to Rs. 2971 crs compared to Rs. 3716 crs in Q1FY15, 20% decline Q-o-Q. Gross and Net NPAs stood at 3.5% & 2.3% respectively with PCR 56.3%. Loan book and deposit growth were 18.5% Y-o-Y and 19.9% Y-o-Y respectively. CASA ratio was stable at 28.4% driven by 11% Y-o-Y in saving deposits."

"BOI has posted operationally weak quarterly performance. The bank has been quite volatile in terms of earning and asset quality trends in last three & half years. Strong revenue growth momentum offset by 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. We have cut our FY15 & FY16 earnings by 4% and 9% respectively estimates factoring higher OPEX growth and increase in provisions Post At Rs. 286 the stock is trading at 0.7x FY16 adjusted book, 4.7x FY16e earnings, fairly valued given the subdued ROA and ROE profile. We downgrade from “BUY” to “HOLD” on the stock with target price of Rs. 298", says KRChoksey research report.

For all recommendations, click here

Read More