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Bank of India reported higher net interest income and advances growth of 23.1% and 28.1% respectively on a yearly basis. However, asset quality pressures emerged as the annualized slippage ratio increased to 5% from 2.4% in the previous quarter. Pre-provision profits declined 6.9% quarter-on-quarter due to higher operating expenses. Overall earnings decreased 26.3% year-on-year as provisions grew due to worsening asset quality. The bank maintained a "Buy" rating with a target price of Rs. 413 based on relatively cheap valuations.
Bank of India reported higher net interest income and advances growth of 23.1% and 28.1% respectively on a yearly basis. However, asset quality pressures emerged as the annualized slippage ratio increased to 5% from 2.4% in the previous quarter. Pre-provision profits declined 6.9% quarter-on-quarter due to higher operating expenses. Overall earnings decreased 26.3% year-on-year as provisions grew due to worsening asset quality. The bank maintained a "Buy" rating with a target price of Rs. 413 based on relatively cheap valuations.
Bank of India reported higher net interest income and advances growth of 23.1% and 28.1% respectively on a yearly basis. However, asset quality pressures emerged as the annualized slippage ratio increased to 5% from 2.4% in the previous quarter. Pre-provision profits declined 6.9% quarter-on-quarter due to higher operating expenses. Overall earnings decreased 26.3% year-on-year as provisions grew due to worsening asset quality. The bank maintained a "Buy" rating with a target price of Rs. 413 based on relatively cheap valuations.
NII 3,047 2,719 12.1 2,476 23.1 Pre-prov. profit 1,996 2,144 (6.9) 2,075 (3.8) PAT 558 586 (4.8) 757 (26.3) Source: Company, Angel Research For 4QFY2014, Bank of India (BOI) reported asset quality pressures, with annualised slippage rate at 5.0% (vs 2.4% in 3QFY2014). On the operating front, the NII for the bank grew healthy by 23.1% yoy (12.1% growth qoq) on back of 28.1% yoy growth in advances. The other income excluding treasury de-grew by 11.3% yoy. Continuing the trend of last three quarters, the opex grew higher by 31.4% yoy. Overall the earnings for the bank de-grew by 26.3% yoy. Strong business growth; Global NIM declines 4bp qoq: During 4QFY2014, the bank registered a strong 28.1% yoy growth in its overall advances, aided by a robust growth in its international loan book (at 24.8% yoy partly on back of INR depreciation). Even overall deposits for the bank grew at a strong pace of 24.9% yoy. The CASA ratio for bank dipped sequentially by 34bp to 22.1%. Domestic NIM declined by 4bp sequentially to 2.9%. Overall global NIMs declined 4bp qoq to 2.3%. The banks performance on the non-interest income (excluding treasury) front was weak, as it witnessed de-growth of 11.3% yoy to `831cr. On the asset quality front, the bank witnessed pressure as absolute Gross and Net NPA levels increased 16.5% and 20.7% yoy sequentially. Slippages for the bank came at `3,600cr (annualised slippage ratio at 5.0% compared to 2.4% in 3QFY2014 and 2.0% in 2QFY2013). The banks recoveries/upgrades for the quarter were at `1,300cr as compared to `1,104cr in 3QFY2014 and `889cr in 2QFY2014. The PCR decreased sequentially by 509bp to 58.7%; as a result, absolute Net NPA levels increased 20.7% sequentially. During the quarter, the bank sold off `1,071cr worth of assets to ARCs. During the quarter, the bank restructured advances worth `2,400cr (compared to `1,146cr restructured in 3QFY2014), thereby taking its total standard restructured book to ~`13,557cr (~4.4% of its loan book). Going ahead, as per the Management, the restructuring pipeline stands at ~`1,100cr. Outlook and valuation: BOIs asset quality performance over the last two quarters has been reasonable (aided by healthy recoveries/upgrades largely on back of asset sale to 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. Inspite of the recent run up in the stock price, the bank is trading at relatively cheap valuations of 0.7x FY2016E ABV. We recommend a Buy rating on the stock with a target price of `413. Key financials (Standalone) Y/E March (` cr) FY2013 FY2014 FY2015E FY2016E NII 9,024 10,831 12,104 13,635 % chg 8.5 20.0 11.8 12.6 Net profit 2,750 2,729 3,462 4,038 % chg 2.7 (0.7) 26.9 16.6 NIM (%) 2.2 2.2 2.1 2.0 EPS (`) 46.1 42.4 53.8 62.8 P/E (x) 7.5 8.1 6.4 5.5 P/ABV (x) 1.0 0.9 0.8 0.7 RoA (%) 0.7 0.5 0.6 0.6 RoE (%) 13.0 10.6 11.5 12.2 Source: Company, Angel Research; Note: CMP as of May 23, 2014
BUY CMP `345 Target Price `413 Investment Period 12 Months
Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 66.7 MF / Banks / Indian Fls 15.4 FII / NRIs / OCBs 11.4 Indian Public / Others 6.6 Abs. (%) 3m 1yr 3yr Sensex 20.2 25.5 37.1 BOI 107.3 12.3 (18.2) Banks Market Cap (` cr) 22,181 Beta 1.6 52 Week High / Low 353/127 Avg. Daily Volume 658,554 Face Value (`) 10 BSE Sensex 24,693 Nifty 7,367 Reuters Code BOI.NS BOI@IN
Strong business growth; Global NIM declines sequentially During 4QFY2014, the bank registered a strong 28.1% yoy growth in its overall advances, aided by a robust growth in its international loan book (at 24.8% yoy partly on back of INR depreciation). Domestic advances for the bank grew strong by 29.5% yoy, aided by strong growth in corporate, agri and retail segments which grew by 30.7%, 33.4% and 32.4% yoy respectively. Going ahead, the Management has guided for an advances growth of 18-20% for FY2015. The overall deposits for the bank grew at a strong pace of 24.9% yoy. CASA deposits grew moderate at 12.4% yoy, with savings deposits growth at 13.1% yoy and current account growth at 9.3% yoy. Consequently, the CASA ratio for the bank dipped sequentially by 34bp to 22.1%. Domestic NIMs declined by 4bp sequentially to 2.9%, as the domestic cost of funds declined by 27bp qoq. The domestic yield on advances came in lower by 8bp qoq to 11.2%. Global NIMs also declined 4bp qoq to 2.3%. Going ahead, the Management has guided at a domestic NIM of 3.0% and international NIM of 1.3% for FY2015.
Bank of India | 4QFY2014 Result Update
May 24, 2014 4 Exhibit 4: Business grows strong on back of high C/D Source: Company, Angel Research Exhibit 5: CASA ratio improves Source: Company, Angel Research
15.3 16.2 13.9 15.9 12.4 - 5.0 10.0 15.0 20.0 25.0 27.0 29.0 31.0 33.0 35.0 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 Domestic CASA ratio (%) CASA yoy growth (%, RHS)
Bank of India | 4QFY2014 Result Update
May 24, 2014 5 Exhibit 8: Yileds on advances decline by 8bp qoq Source: Company, Angel Research Exhibit 9: Domestic NIM declines 4bp qoq Source: Company, Angel Research
De-growth in non-interest income (excl. treasury) The bank posted a de-growth of 11.3% yoy in non-interest income (excluding treasury) to `831cr. CEB income grew moderate by 7.4% yoy to `408cr. Income from the Forex segment de-grew by 55.2% yoy to `83cr. Income from the others segment remained largely flat at `172cr. Treasury income came in at `83cr against `157cr in 4QFY2013. Overall, the non-interest income for the bank de-grew by 16.5% yoy to `914cr. Going ahead, the Management has guided for a fee-income growth of 20% for FY2015. Exhibit 10: Moderate performance on other income (excl. Treasury) Particulars (` cr) 4QFY14 3QFY14 % chg (qoq) 4QFY13 % chg (yoy) CEB 408 354 15.3 380 7.4 Treasury 83 127 (34.6) 157 (47.2) Forex 83 207 (59.9) 185 (55.2) Recoveries 168 226 (26) 195 (13.9) Others 172 183 (6.0) 176 (2.4) Other income 914 1,097 (16.7) 1,094 (16.5) Other income excl. treasury 831 970 (14.3) 937 (11.3) Source: Company, Angel Research Asset quality witnesses pressure During the quarter, the banks asset quality witnessed pressure as absolute Gross and Net NPA levels increased 16.5% and 20.7% yoy sequentially. Slippages for the bank came in at `3,600cr (annualised slippage ratio at 5.0% compared to 2.4% in 3QFY2014 and 2.0% in 2QFY2013). The banks recoveries/upgrades for the quarter stood at `1,300cr as compared to `1,104cr in 3QFY2014 and `889cr in 2QFY2014. The banks PCR decreased sequentially by 509bp to 58.7%; as a result, absolute Net NPA levels increased 20.7% sequentially. The Gross and Net NPA ratios increased by 34bp and 25bp respectively to 3.2% and 2.0% on a sequential basis.. During the quarter, the bank sold off `1,071cr worth of assets to ARCs (around `1,700cr in 3QFY2014). During the quarter, the bank restructured advances worth `2,400cr (compared to `1,146cr restructured in 3QFY2014), thereby taking its total standard restructured 11.52 11.32 11.36 11.32 11.24 10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4 11.6 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 (%) 2.8 3.07 2.93 2.89 2.85 1.5 1.8 2.0 2.3 2.5 2.8 3.0 3.3 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 Reported NIM (%)
Bank of India | 4QFY2014 Result Update
May 24, 2014 6 book to ~`13,557cr (~4.4% of its loan book). Going ahead, as per the Management, the restructuring during the next quarter is likely to be ~`1,100cr. Exhibit 11: Slippages increase substantially qoq Source: Company, Angel Research Exhibit 12: NPA ratios increase; PCR decline qoq Source: Company, Angel Research
Exhibit 13: Cost to income ratio rises qoq Source: Company, Angel Research Exhibit 14: Capital adequacy trends Source: Company, Angel Research * Basel III hence not comparable
May 24, 2014 7 Investment arguments Reasonably high fee income with a moderate funding mix International operations contribute a substantial ~30% (25.9% yoy growth in 4QFY2014, partly on account of INR depreciation at a high C/D rate of 98.7%) to the banks advances. International operations enable a wider spectrum of fee-based services to the banks domestic corporate and retail customers; further, they enable foreign currency fund-based services to Indian corporate, and savings products to the banks PIO clients abroad. The bank has a moderate funding mix, with domestic CASA ratio at 32.7% as of 4QFY2014. Investment concerns Asset quality remains on the radar on back of pressures witnessed in 4QFY2014 After moderating in FY2011, asset quality pressures have again resurfaced for the bank. In FY2012, while the annualized slippage ratio for the bank came in at 2.5%, for FY2013 it increased to 2.9%. During FY2014, the annualized slippage rate has come in higher at 3.0%, even the recoveries/upgrades performance came in lower yoy. As a result, absolute NPAs increased by 35.4% yoy. Going ahead, while the banks Management has guided for a stable to improving outlook on asset quality, we remain watchful on the incremental asset quality pressures (slippages and incremental restructuring) for the bank, as we take into account past volatility witnessed in banks asset quality performance, its high exposure to stressed sectors, and overall weak macro-economic environment.
Outlook and valuation BOIs asset quality performance over the last two quarters has been reasonable (aided by healthy recoveries/upgrades largely on back of asset sale to 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. Inspite of the recent run up in the stock price, the bank is trading at relatively cheap valuations of 0.7x FY2016E ABV. We recommend a Buy rating on the stock with a target price of `413.
Bank of India | 4QFY2014 Result Update
May 24, 2014 8 Exhibit 15: Key assumptions Particulars (%) Earlier estimates Revised estimates FY2015E FY2016E FY2015E FY2016E Credit growth 15.0 15.0 15.0 15.0 Deposit growth 15.0 15.0 16.0 16.0 CASA ratio 23.3 23.4 22.0 21.9 NIMs 2.1 2.0 2.1 2.0 Other income growth (1.8) 12.0 (1.7) 13.6 Growth in staff expenses 10.0 12.5 7.5 10.0 Growth in other expenses 10.0 12.5 10.0 12.5 Slippages 2.4 2.2 2.5 2.3 Coverage 67.5 70.0 60.0 62.5 Source: Company, Angel Research
Exhibit 17: P/ABV band Source: Company, Angel Research
0 200 400 600 800 1000 M a r - 0 4 A u g - 0 4 J a n - 0 5 M a y - 0 5 O c t - 0 5 M a r - 0 6 J u l - 0 6 D e c - 0 6 A p r - 0 7 S e p - 0 7 J a n - 0 8 J u n - 0 8 N o v - 0 8 M a r - 0 9 A u g - 0 9 D e c - 0 9 M a y - 1 0 O c t - 1 0 F e b - 1 1 J u l - 1 1 N o v - 1 1 A p r - 1 2 S e p - 1 2 J a n - 1 3 J u n - 1 3 O c t - 1 3 M a r - 1 4 Price (`) 0.3x 0.7x 1.1x 1.5x 1.9x
Company Background Bank of India is amongst the five largest banks in India, with a balance sheet size of over `5.7lakh cr. The bank has a pan-India network of around 4,500 branches, of which around two-third are located in rural and semi-urban areas. The bank also has considerable presence overseas, which accounts for ~30% of its total advances.
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