For 4QFY2011, Bank of India posted moderate net profit growth of 15.4% yoy, substantially below our as well as street’s estimates due to hit of pension costs for retired employees. Operating income was above expectations due to interest on income tax refund of `275cr and higher treasury profits. We recommend Buy on the stock due to attractive valuations and declining provisioning burden.
Healthy business growth but NIM and slippages disappoint: For 4QFY2011, the bank’s business momentum was healthy with advances and deposits growing by 10.6% qoq and 18.4% qoq, respectively. Domestic CASA deposits growth moderated to 18.3% yoy, however saving deposits growth was relatively better at 22.9% yoy. Domestic CASA ratio declined to 28.9% in 4QFY2011 from 32.3% in 3QFY2011. Global reported NIM declined by 15bp sequentially to 2.94% in 4QFY2011, due to a 35bp qoq rise in cost of deposits, flat yield of advances and ~500bp qoq moderation in CD ratio. On the asset-quality front, the annualised slippage ratio for the quarter rose to 2.5% from 1.1% in 3QFY2011; however, it was lower than 4.2% registered in 4QFY2010 and 2.9% for FY2010. Gross NPA ratio improved to 2.2% from 2.4% in 3QFY2011 due to strong loan growth and higher write-offs. Provision coverage ratio including technical write-offs declined to 72.2% from 74.5% in 3QFY2011 despite doubling of credit costs sequentially.
Outlook and valuation: The bank’s RoEs are expected to improve over the coming quarters on the back of declining NPA provisions (as witnessed in FY2011). Post the recent sharp correction in the stock, it is trading at 6.0x FY2013E EPS of `65.5 and 1.0x FY2013E ABV. Hence, we recommend Buy on the stock with a target price of `490.
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