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Bank of India 2QFY2013 performance highlights and results update

Contributed by Angel Broking

During 2QFY2013, BOI registered a moderate performance on the operating front, with operating income and operating profit growth of 12.5% and 19.5%, respectively. PBT for the bank de-grew by 24% yoy, as provisioning expenses went up significantly by 34.5% yoy as asset quality pressures continue.

NIMs improve qoq; Asset quality pressures continue: During 2QFY2013, the overall advances registered a healthy growth by 19.5% yoy. Domestic advances grew by 15.6% yoy (aided by strong growth in retail segment and higher lending in segments such as corporate and agri), while international advances growth was 30.4% yoy (partly aided by INR depreciation). Domestic CASA deposits grew by a moderate 9.8% yoy, largely aided by an 11.8% growth in domestic saving deposits. Reported CASA ratio improved by ~70bp yoy to 32.7%. Domestic NIMs improved by 28bp sequentially to 2.8% on a low base, while foreign NIMs declined significantly by 23bp qoq to 1.2%. Overall NIM improved by 15bp qoq to 2.4%. Non-interest income (excluding treasury) grew at a healthy pace, aided by higher recoveries and healthy growth in forex income. The bank witnessed continued pressures on the asset quality front, with both gross and net NPA levels, on an absolute basis, increasing by 31.8% and 18.5%, qoq respectively. Slippages amounted to Rs.2,700cr, out of which ~80% were from accounts worth Rs.5cr or more, largely from segments such as large and mid corporates. Sectorally, 50% of the incremental slippages came from textile and metals & mining. Annualized slippage ratio came in at 4.4% compared to 2.8% in 1QFY2013 and 5.3% in 2QFY2012. The management exuded confidence in recovering a large part of these slippages going forward. Additionally, the bank restructured advances worth —Rs.810cr during the quarter. As of 2QFY2013, the standard restructured book of the bank stands at —Rs.1 7,786. As per the RBIRs.s latest 75bp increase in provisioning requirement on standard restructured advances, the bank would have to make additional provision of Rs.133cr, which we have appropriately factored in our estimates. The management expects no major advances to be in restructuring pipeline.

Outlook and valuation: At CMP, the stock trades at a discount to its peers such as BOB and PNB, as RoEs (even after factoring healthy earnings CAGR of 16.9% over FY2012-14E) are expected to reach —15.8% in FY2014E, which are still lower than peers. Hence, we value Bank of India at 0.8x (at 10% discount to peers) to arrive at a target price of Rs.304. This still leaves an upside of 1 1.4% from the CMP; hence, we recommend an Accumulate rating on the stock.