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Bank of India 3QFY2013 performance highlights and results update

Contributed by Angel Broking

During 3QFY2013, Bank of India reported a net profit growth of 12.2% yoy, mainly aided by lower tax expenses, while the earnings at PBT level declined by 9.5% yoy. Key highlight from the results was the moderation witnessed on the slippages front.

Advance growth healthy; NIMs decline sequentially: During 3QFY2013, the overall advances for the bank registered a healthy growth by 20% yoy. Domestic advances grew by 15.7% yoy (aided by strong growth in agri segment and higher lending in segments such as corporate and retail), while international advances grew by 30.5% yoy (due to higher short term credit). Domestic CASA deposits grew at 12.0% yoy, largely aided by 13.2% growth in domestic saving deposits. The domestic reported CASA ratio for the bank improved sequentially by ~100bp to 32.8%. Domestic NIM came off by 4bp sequentially to 2.8%, while the foreign NIMs declined significantly by 10bp qoq to 1.1%. Despite, 8.6% yoy decline in income from the CEB segment, the bank witnessed a moderate 9% yoy growth in non-interest income (excluding treasury), aided by higher recoveries from written-off accounts and strong growth in income from the forex segment. During the quarter, the asset quality pressures for the bank showed early signs of abating, as the annualized slippage ratio came in much lower sequentially at 2.0%, compared to 3.6% in 1HFY2013. Recoveries/upgrades improved sequentially to Rs.679cr compared to an average of Rs.540cr in the last two quarters. The bank reported higher write-offs during the quarter at Rs.811cr compared to a total of Rs.316cr in 1HFY2013. Higher write-offs coupled with lower slippages and better recoveries/upgrades, aided the bank to maintain its gross NPA levels sequentially, on an absolute basis. The bank’s PCR remained largely stable sequentially at 60.7%. Of the slippages during the quarter, nearly 55% came from a single account in the steel sector. Additionally, the bank restructured advances worth ~Rs.2,200cr during the quarter, of which almost 40% came from the textile industry. As of 3QFY2013, the standard restructured book of the bank stands at ~6.5% of the total loan book.

Outlook and valuation: At CMP, the stock trades at a discount to its peers such as BOB and PNB, as its RoE (even after factoring healthy earnings CAGR of 18.2% over FY2012-14E) is expected to reach ~16% in FY2014, which is still lower than its peers. Hence, we value Bank of India at 1.0x (at 10% discount to peers) to arrive at a target price of Rs.380, which still leaves an upside of 7.4% from the CMP; hence, we recommend an Accumulate rating on the stock.