Bank of India 3QFY2014 performance highlights and results update
February 6, 2014, Thursday, 06:06 GMT | 02:06 EST | 11:36 IST | 14:06 SGT
For 3QFY2014, Bank of India reported stable asset quality numbers, aided by strong recoveries/upgrades performance (at Rs.1,104cr compared to Rs.889cr in 2QFY2014). NII growth was healthy at 17.8% yoy, leading to operating profit growth of 15.5% yoy. Provisioning expenses grew by 53.3% yoy, as the bank maintained its PCR at 63.8% and as a result, earnings for the bank de-grew 27.1% yoy (excluding the Rs.68cr tax provision for deferred tax liability on special reserve, PAT de-growth would have been limited to 18.6% yoy).
Strong business growth; Global NIMs largely flat qoq: During 3QFY2014, the bank registered a strong 27.2% yoy growth in its overall advances, aided by a robust growth in its international loan book (at 33.1% yoy partly on back of INR depreciation). Even deposits growth for the bank was strong at 30.1% yoy. Domestic CASA ratio for the bank increased 190bp sequentially to 31.6%. Domestic NIMs declined 4bp qoq to 2.9%, as the domestic cost of funds increased 19bp qoq. Global NIM remained largely flat qoq to 2.4%. The bank’s performance on the non-interest income (excluding treasury) front was moderate with a growth of 14.0% yoy to Rs.970cr. On the asset quality front, while slippages came in higher sequentially (annualized slippage ratio at 2.4% vs. 2.0% in 2QFY2014 and 2.0% in 3QFY2013), strong recoveries/upgrades performance (at Rs.1,104cr vs. an average of Rs.630cr in the last four quarters) aided the bank to report stable asset quality numbers (absolute Gross and Net NPA levels remained largely flat qoq). The bank’s PCR also remained largely stable qoq at 63.8%. During the quarter, the bank restructured advances worth Rs.1,146cr (compared to Rs.855cr restructured in 2QFY2014), thereby taking its total standard restructured book to ~Rs.16,394 (~4.7% of its loan book). Of the incremental restructuring major accounts belonged to Infra, Engineering, Steel and Auto components sectors. Also Rs.1,800 of restructured SEB book has been converted to bonds during 3QFY2014. Going ahead, as per the Management, the restructuring during the next quarter is likely to be in the range of Rs.1,500-1,700cr.
Outlook and valuation: Given the current macro-economic backdrop, BOI’s asset quality performance over the last two quarters has been reasonable (aided by healthy recoveries/upgrades largely on back of asset sale of ARCs, while slippages and incremental restructuring still remain elevated). Going ahead, the management has guided for a stable to improving outlook on its asset quality. After the recent sharp correction, the stock trades at moderate valuations of 0.4x FY2015E ABV. We recommend Buy rating on the stock, with a target price of Rs.219.