Bank of India

Another superlative quarter

January 23, 2008 „ Profits way above estimates: BoI's Q3FY08 net profit grew by 100% YoY

Q3FY08 Result Update

at Rs5.2bn, which was significantly above our estimates by 43% of
Rs3.6bn. NII growth was in line with expectations, while high other
Rating BUY income growth and lower than expected operating expenses mainly
Price Rs408 resulted in such a strong out performance.
Target Price Rs520 „ NII growth in line with expectations: NII (gross of amortisation
Implied Upside 27.5% expenses) grew by 24% YoY to Rs11.4bn. Margins improved by 17bps YoY
and 10bps QoQ. On sequential basis, margins have mainly improved due
Sensex 17,594
to decline in cost of funds as asset yields have more or less remained
(Prices as on January 23, 2008)
stable.
„ Other income continues to be robust: Other income (net of
Trading Data
amortisation costs) grew by 87% YoY and 6% QoQ to Rs4.9bn, of which
fee income grew by 42% YoY and treasury by 110% YoY to Rs1.2bn.
Market Cap. (Rs bn) 199.2
Shares o/s (m) 488.1 „ Strong operating performance: Operating profit was up 76% YoY and
16% QoQ driven by strong 38% YoY net income growth and muted
Free Float 30.5%
operating expenses growth of 5.5% YoY.
Avg. Daily Vol (‘000) 515.4
„ Factoring QIP issue at Rs450 per share: We have factored in a dilution
Avg. Daily Value (Rs m) 191.9
of 7.8% of BoI’s existing equity base at Rs450 per share, which would
help it raise around Rs17bn. The current BV is Rs138 per share, thus the
issue would be significantly BV accretive; post issue tier-I ratio is likely
to be at 8.2%.
Major Shareholders
„ Valuation: At the CMP, the stock is quoting at 7.5x FY10E EPS, 1.7x
Promoters 69.5%
FY10E BV and 1.7x FY10E ABV. We expect its earnings to grow at a CAGR
Foreign 17.1% of 37% in FY07-10E with improvement in asset quality. We maintain a
Domestic Inst. 6.4% BUY on the stock with a 15-month forward price target of Rs520.
Public & Others 7.0%

Key financials (Rs m) FY07 FY08E FY09E FY10E

Net interest income* 36,841 44,901 54,400 64,778
Growth (%) 28.1 21.9 21.2 19.1
Stock Performance
Operating profit 23,945 35,913 44,658 55,158
(%) 1M 6M 12M PAT 11,232 17,973 22,909 28,778
Absolute 16.3 56.8 108.0 EPS (Rs) 23.0 34.2 43.6 54.7
Growth (%) 60.2 48.5 27.5 25.6
Relative 24.5 44.9 82.7
Net DPS (Rs) 4.0 6.8 8.7 10.9

Source: Company Data; PL Research * Gross of amortisation expenses

Price Performance (RIC: BOI.BO, BB: BOI IN) Profitability & valuation FY07 FY08E FY09E FY10E
(Rs) NIM (%)* 2.9 2.9 2.9 2.9
470 RoAE (%) 21.2 23.9 23.6 24.6
420 RoAA (%) 0.9 1.1 1.2 1.3
370 P / BV (x) 3.5 2.4 2.0 1.7
320 P / ABV (x) 3.9 2.5 2.1 1.7
270 PE (x) 17.7 11.9 9.4 7.5
220 Net dividend yield (%) 4.0 6.8 8.7 10.9
170 Source: Company Data; PL Research * Gross of amortisation expenses
120
Mar-07
Jan-07

Jan-08
May-07

Jul-07

Nov-07
Sep-07

Abhijit Majumder Bharat Gorasiya

AbhijitMajumder@PLIndia.com BharatGorasiya@PLIndia.com
Source: Bloomberg
+91-22-6632 2236 +91-22-6632 2242
 Bank of India

Highlights
Margins continue to show improvement unlike peers

BOI is perhaps the only PSU bank which is unscathed from the high deposit
cost pressure on margins for most other PSU banks. CASA ratio remains
healthy at 37%, stable on QoQ basis but down by 400bps YoY. Despite the fall
in CASA, a broad industry phenomenon, the bank has managed well to
improve its margins and maintain steady business growth.

Trend in NIM

3.2
3.2
3.1
3.1
3.0
3.0
2.9
2.9
2.8
2.8
2.7
Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08

Source: Company Data, PL Research

Responsible business growth has been the key

The bank, unlike its peers, had not relied on bulk deposits to fund its
advances growth. Rather, bulk deposit comprises of only 10% of its total
deposits. This responsible business growth, with more focus on quality, has
helped BOI to improve margins and also its asset quality. A rare feat not
displayed by most other PSU banks.

Trend in advances and deposit growth

32.0 Advances Deposits

30.0

28.0

26.0

24.0

22.0

20.0
Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08

Source: Company Data, PL Research

January 23, 2008 2

 Bank of India

AS-15 expenses already provided for FY08

The bank estimates its transitional liability of Rs5bn to be spread over five
years, of which Rs1bn has already been provided for this year.

Asset quality likely to improve further

There is little stress on the bank’s asset quality as GNPAs (at 1.9% vs. 2.7%
QoQ) and NNPAs (at 0.6% vs. 0.8% QoQ) are both down on sequential basis in
percentage and absolute terms. The innovative recovery methods (providing
incentives to employees) adopted by the management is yielding good
results. The bank plans to increase provision coverage to 85% by March 2008
from 78% at present thus improving the asset quality further.

Trend in GNPA and NNPA

25.0 GNPA (Rs bn) NNPA (Rs bn) NNPA (%) - (RHS) 1.0
0.9
20.0 0.8
0.7
15.0 0.6
0.5
10.0 0.4
0.3
5.0 0.2
0.1
0.0 0.0
Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08

Source: Company Data, PL Research

Outlook

BOI has been the best performing PSU bank for the last six quarters. It is
prudently utilising treasury gains to increase its provision coverage. We
expect the QIP placement to be at a much higher price than the SEBI floor
price of Rs359 per share (our assumption Rs450). With a RoE of 24%, FII
headroom still available and improving asset quality, BOI continues to remain
among our top picks.

Valuation

At the CMP, the stock is quoting at 7.5x FY10E EPS, 1.7x FY10E BV and 1.7x
FY10E ABV. We expect its earnings to grow at a CAGR of 37% in FY07-10E
with improvement in asset quality. We maintain a BUY on the stock with a
15-month forward price target of Rs520.

January 23, 2008 3

 Bank of India

Q3FY08 result overview (Rs m)

Y/e March Q3FY08 Q3FY07 YoY gr. (%) Q2FY08 9MFY08 9MFY07 YoY gr. (%)
Total interest earned 32,161 23,181 38.7 30,412 90,476 65,642 37.8
Total non interest income* 4,890 2,614 87.1 4,630 12,700 8,062 57.5
Total income 37,051 25,795 43.6 35,042 103,176 73,704 40.0
Int. expended 20,717 13,984 48.1 19,895 58,412 39,115 49.3
Net int. income** 11,445 9,198 24.4 10,517 32,065 26,527 20.9
Net total income 16,335 11,811 38.3 15,147 44,765 34,589 29.4
Op. expenses 6,622 6,279 5.5 6,744 19,871 19,589 1.4
Op. profit 9,713 5,532 75.6 8,403 24,893 15,000 66.0
Core op. profit 7,553 4,789 57.7 6,373 21,823 13,425 62.6
Provisions 2,314 2,286 1.2 3,000 7,294 5,556 31.3
PBT 7,399 3,246 127.9 5,403 17,599 9,443 86.4
Prov. for taxes 2,281 697 227.4 1,153 5,067 2,683 88.8
Net profit 5,118 2,549 100.8 4,251 12,532 6,760 85.4
CAR (%) 12.5 11.8 12.6 12.5 11.8
EPS (Rs) 10.5 5.2 100.8 8.7 25.7 13.9 85.4
Gross NPA 19,693 21,860 (9.9) 19,837 19,693 21,860 (9.9)
Net NPA 6,335 7,480 (15.3) 7,137 6,335 7,480 (15.3)
% of gross NPAs 1.9 2.7 2.1 1.9 2.7
% of net NPAs 0.6 1.0 0.8 0.6 1.0
Deposits 1,358,350 1,066,120 27.4 1,295,910 1,358,350 1,066,120 27.4
Advances 1,036,570 798,180 29.9 958,160 1,036,570 798,180 29.9
* Net of amortisation expenses ** Gross of amortisation expenses

January 23, 2008 4

 Bank of India

Prabhudas Lilladher Pvt. Ltd.

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Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

PL’s Recommendation Nomenclature

BUY : > 15% Outperformance to BSE Sensex Outperformer (OP) : 5 to 15% Outperformance to Sensex
Market Performer (MP) : -5 to 5% of Sensex Movement Underperformer (UP) : -5 to -15% of Underperformace to Sensex
Sell : <-15% Relative to Sensex
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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January 23, 2008 5