Dear All,
Forwarding you the Result Flash on Bank of India for 4QFY2011 with a Buy recommendation.
For 4QFY2011, Bank of India registered a moderate net profit growth of 15.4% yoy substantially lower than our as well as the street’s estimates due to the hit on account of pension liability for retired employees of Rs708cr. NII growth (48.7% yoy) was higher-than-estimates due to interest on income tax refund of ~Rs275cr.
Key highlights:
· Business growth momentum was strong with advances and deposits growing at 10.6% qoq and 18.4% qoq, respectively. On a yoy basis, advances and deposits grew by 26.5% and 30.1%, respectively. CASA deposits registered growth of 18.3% yoy on the back of 22.9% rise in saving account deposits. Global CASA ratio stood at 29.2%.
· Reported global NIMs declined by 15bp qoq to 2.94% due to a 9bp decline in domestic NIMs to 3.38% and a 21bp fall in international NIMs. However, NII grew by 16.1% qoq and 48.7% yoy due to ~Rs275cr of interest on income tax refund. Non-interest income growth was strong sequentially, registering a growth of 27.0% qoq.
· Operating expenses increased by 54.5% qoq and 92.6% yoy, primarily due to 74.6% qoq and 144.2% increase in employee expenses due to the hit of employee-benefit related liabilities. During FY2011 the bank made a provision for enhancement in gratuity limits of Rs86cr (1/5th of total liability of Rs429cr). It also took a hit of Rs442cr (1/5th of total liability of Rs2,212cr) towards additional liability for serving employees under the second pension option and 100% of the liability (Rs708cr) towards second pension option liability for retired employees.
· The asset quality of the bank deteriorated with the annualized slippage ratio for 4QFY2011 more than doubling to 2.4% from 1.1% in 3QFY2011 (1.5% in 9MFY2011). Overall Gross NPAs increased by 5.9% qoq and Net NPAs rose by 17.1% qoq. However, due to strong sequential traction in advances, Gross and Net NPA ratios improved to 2.2% and 0.9%, respectively from 2.4% and 0.9%, respectively in 3QFY2011. The reported provision coverage ratio stood at 72.2% (74.5% in 3QFY2011). Provisioning expenses remained stable sequentially but were down by 41.0% yoy.
At the CMP, the stock is trading at 1.1x FY2013E ABV. Post the recent sharp fall in the stock, we recommend a Buy on the stock. We may revise our estimates and Target Price post interaction with the management.
| Exhibit 1: 4QFY2011 Actual vs. Estimates | |||
| (Rs cr) | Actual | Estimates | Var. (%) |
| Net interest income | 2,307 | 2,023 | 14.0 |
| Non-interest income | 823 | 690 | 19.4 |
| Operating income | 3,130 | 2,713 | 15.4 |
| Operating expenses | 1,925 | 1,277 | 50.7 |
| Pre-prov. profit | 1,205 | 1,436 | (16.1) |
| Provisions & contingencies | 478 | 289 | 65.3 |
| PBT | 728 | 1,147 | (36.6) |
| Prov. for taxes | 234 | 402 | (41.7) |
| PAT | 494 | 745 | (33.8) |
Source: Company, Angel Research
Exhibit 2: 4QFY2011 Performance summary
| (Rs cr) | 4QFY2011 | 3QFY2011 | % chg (qoq) | 4QFY2010 | % chg (yoy) |
| Interest earned | 6,307 | 5,468 | 15.4 | 4,525 | 39.4 |
| Interest expenses | 4,000 | 3,481 | 14.9 | 2,973 | 34.5 |
| Net interest income | 2,307 | 1,987 | 16.1 | 1,552 | 48.7 |
| Non-interest income | 823 | 648 | 27.0 | 723 | 13.8 |
| Operating income | 3,130 | 2,635 | 18.8 | 2,275 | 37.6 |
| Operating expenses | 1,925 | 1,246 | 54.5 | 999 | 92.6 |
| Pre-prov. Profit | 1,205 | 1,389 | (13.2) | 1,275 | (5.5) |
| Provisions & contingencies | 478 | 498 | (4.1) | 809 | (41.0) |
| PBT | 728 | 891 | (18.3) | 466 | 56.0 |
| Prov. for taxes | 234 | 238 | (1.5) | 39 | 507.8 |
| PAT | 494 | 653 | (24.4) | 428 | 15.4 |
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