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Bank of India
Core performance in line; asset quality surprises negatively
May 02, 2011
Headline numbers below expectations, higher provisions take a toll: Bank of
India’s (BoI’s) Q4FY11 PAT came in at Rs4.94bn, up by 15.4% YoY, but down
Q4FY11 Result Update
Abhijit Majumder steeply by 24.4% QoQ, well below our as well street expectations. The steep
abhijitmajumder@plindia.com decline in profitability could be attributed to higher pension and loan loss
+91‐22‐66322236 provisions made during the quarter. Net interest income (NII) for the quarter
Umang Shah
grew by 48.7% YoY and 16.1% QoQ to Rs23.1bn. However, adjusting for interest
umangshah@plindia.com on income tax refund of Rs2.7bn, NII growth was right in line with our estimate
+91‐22‐66322242 of Rs20.3bn. Global NIMs (excluding interest on IT refund) declined by 15bps to
2.94%. Global NIMs remained under pressure on account of a 21bps QoQ
Rating BUY
decline in the overseas NIM, while the domestic NIM contracted at a slower
Price Rs418
pace by 11bps QoQ. Going forward, overseas NIMs are likely to remain stable
Target Price Rs629
with an upward bias as the bank completely deploys funds raised through MTN
Implied Upside 50.5%
during February 2011. Advances grew by 26.2% YoY and 12.1% QoQ, due to
Sensex 18,998
strong growth in foreign advances (41% YoY) v/s domestic advances (up 22%
(Prices as on May 02, 2011)
YoY and 9% QoQ). Deposits grew strongly by 30.1% YoY and 18.4% QoQ. CASA
ratio fell below the 30% mark to 29.2% from 32.5% in Q3FY11 on account of a
Trading data
Market Cap. (Rs bn) 228.7
steep 23.7% QoQ increase in domestic term deposits. Consequently, domestic
Shares o/s (m) 547.2 CD ratio stands at 65.3% putting the bank in a comfortable position to now not
3M Avg. Daily value (Rs m) 414.2 raise deposits at higher rates. Non‐interest income grew by 13.8% YoY and
27.0% QoQ on the back of strong increase seen in the treasury income (up 91%
YoY and 114% QoQ). Core fee income too recorded a healthy 22.2% growth on a
Major shareholders QoQ basis. BoI’s pension liability towards the serving and retired employees has
Promoters 65.86% been ascertained at Rs22.1bn (to be amortized over five years, translating into
Foreign 14.28% Rs4.4bn per annum) and Rs7.1bn, respectively. Gratuity liability for the bank
Domestic Inst. 12.50% stands at Rs4.3bn (to be amortized over five years, translating into Rs0.9bn per
Public & Other 7.36% annum). Loan loss provisions increased multi‐fold sequentially due to higher
slippages. However, overall provisioning expenses declined by 4.1% QoQ.
Key financials ( Y/e March) 2010 2011E 2012E 2013E
Stock Performance
Net interest income (Rs m) 57,560 78,106 86,097 107,874
(%) 1M 6M 12M Growth (%) 4.7 35.7 10.2 25.3
Absolute (12.9) (17.7) 9.8 Operating profit (Rs m) 47,048 53,842 67,107 87,273
Relative (10.8) (11.1) 1.6 PAT (Rs m) 17,411 24,886 40,367 53,322
EPS (Rs) 33.1 45.5 73.8 97.4
Growth (%) (42.1) 37.4 62.2 32.1
Price Performance (RIC: BOI.BO, BB: BOI IN) Net DPS (Rs) 7.0 9.0 9.0 9.0
(Rs) Source: Company Data; PL Research
700
600
Profitability & Valuation 2010 2011E 2012E 2013E
500
400 NIM (%)* 2.30 2.49 2.26 2.39
300 RoAE (%) 12.6 15.8 21.3 23.2
200 RoAA (%) 0.70 0.79 1.06 1.06
100
P / BV (x) 1.7 1.4 1.2 1.0
0
P / ABV (x) 1.9 1.5 1.2 1.0
Dec‐10
Jun‐10
Aug‐10
May‐11
Oct‐10
Apr‐10
Mar‐11
PE (x) 12.6 9.2 5.7 4.3
Net dividend yield (%) 1.7 2.2 2.2 2.2
Source: Bloomberg Source: Company Data; PL Research *Calculated on average assets
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Bank of India
Slippages spike up sequentially: Slippages more than doubled to Rs10.0bn
(2.3% annualized) v/s Rs4.8bn (1.2% annualized) in the previous quarter. Higher
slippages could be attributed to Rs4.0bn worth slippages due to migration to
system based NPL recognition method and Rs2.7bn worth slippages from the
agri portfolio. Provisions, including technical write‐ offs, declined to 72.2% v/s
74.5% in the previous quarter. Assets worth Rs7.4bn were restructured during
the quarter on account of substantial assets restructured from the textile
(Rs1.07bn) and hotel sector (Rs973m). However, cumulative restructured assets
were up by just 2.9% QoQ at Rs106.4bn or 4.9% of global advances due to
upgradation of certain accounts.
Valuation and Outlook: BoI has delivered a decent performance on the core
operating front. However, the steep spike in slippages surprised negatively.
Going forward, we expect slippages to trend downwards from Q4 levels, but
may remain elevated during Q1 and Q2FY12 till the migration to system based
NPL recognition method is complete. We expect BoI to report robust earnings
CAGR of 46.4% during the period FY11‐13E on account of decline in staff costs
and decline in incremental provisioning requirements with relaxed PCR norms.
We have revised our earnings estimates upwards by ~10% each for FY12 and
FY13. Although we believe that the sector and the stock could remain under
pressure in the near term due to asset quality concerns and further RBI’s
tightening measures, the sharp correction in the stock price provides an
opportune time to enter the stock from 12‐15 month perspective. We upgrade
our rating on the stock to ‘BUY’ and maintain our price target of Rs629.
May 02, 2011 2
Bank of India
Exhibit 1: Q4FY11 Result Overview (Rs m)
Y/e March Q4FY11 Q4FY10 YoY gr. (%) Q3FY11 FY11 FY10 YoY gr. (%)
Interest Income 63,069 45,251 39.4 54,675 217,517 178,780 21.7
Interest Expense 39,996 29,734 34.5 34,806 139,410 121,220 15.0
Net Interest Income 23,073 15,517 48.7 19,869 78,107 57,560 35.7
Non‐Interest Income 8,231 7,232 13.8 6,482 26,418 26,166 1.0
Treasury Income 1,266 661 91.5 592 3,219 5,936 (45.8)
CEB 3,468 3,338 3.9 2,838 11,810 10,965 7.7
Net total Income 31,304 22,749 37.6 26,351 104,525 83,726 24.8
Operating Expenses 19,251 9,995 92.6 12,464 50,682 36,678 38.2
Employee 14,616 5,987 144.2 8,369 34,754 22,961 51.4
Other operating expenses 4,635 4,008 15.6 4,094 15,928 13,718 16.1
Operating profit 12,053 12,754 (5.5) 13,888 53,842 47,048 14.4
Core operating profits 10,787 12,093 (10.8) 13,296 50,623 41,112 23.1
Provisions 4,776 8,090 (41.0) 4,979 18,888 22,109 (14.6)
Loan loss provisions 3,367 6,600 (49.0) 1,236 10,543 17,542 (39.9)
Profit before tax 7,277 4,664 56.0 8,908 34,954 24,938 40.2
Tax 2,340 385 507.8 2,377 10,067 7,528 33.7
Effective Tax Rate (%) 32.2 8.3 26.7 28.8 30.2
Net Profit after tax 4,936 4,279 15.4 6,532 24,887 17,411 42.9
Asset Quality
Gross NPA's 48,116 48,827 (1.5) 45,421 48,116 48,827 (1.5)
Gross NPA's (%) 2.23 2.85 2.36 2.23 2.85
Net NPA's 19,450 22,075 (11.9) 16,603 19,450 22,075 (11.9)
Net NPA's (%) 91.00 1.31 0.88 91.00 1.31
Provision Coverage (%) 59.6 54.8 63.4 59.6 54.8
Capital Adequacy (%)
CAR 12.2 12.9 12.4 12.2 12.9
Tier 1 8.3 8.5 8.0 8.3 8.5
NIM ‐ Reported (Global) (%) 2.94 2.57 3.09 2.92 2.51
NIM ‐ Calculated (Global) (%) 2.85 2.37 2.72 2.49 2.30
Balance Sheet Items
Deposits 2,988,858 2,297,619 30.1 2,525,257 2,988,858 2,297,619 30.1
CASA 731,385 618,430 18.3 692,872 731,385 618,430 18.3
CASA Ratio (%) 29.2 31.5 32.5 29.2 31.5
Advances 2,161,540 1,713,169 26.2 1,927,538 2,161,540 1,713,169 26.2
Total Assets 3,511,726 2,749,665 27.7 2,954,177 3,511,726 2,749,665 27.7
Source: Company Data, PL Research
May 02, 2011 3
Bank of India
Exhibit 2: Trend in global reported margins
Global NIMs contracted by 15bps QoQ to Yield on Funds ‐ global Cost of funds ‐ global Blended NIM reported (RHS)
2.94% on account of a sharp 21bps QoQ 9.0%
decline in foreign NIM, while the domestic 8.5% 3.4%
NIM contracted by 11bps QoQ. The 8.0% 3.2%
7.5% 3.0%
contraction in NIM could be attributed to a 7.0%
6.5% 2.8%
steep 35bps QoQ increase in the global
6.0% 2.6%
cost of deposits, while the global yield on
5.5% 2.4%
advances increased marginally by 3bps on 5.0%
4.5% 2.2%
a sequential basis.
4.0% 2.0%
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Source: Company Data, PL Research
Advances grew by 26.2% YoY and 12.1% Exhibit 3: Trend in advances and deposits growth
QoQ, due to strong growth in foreign Foreign deposits Non‐CASA deposits CASA deposits
advances (41% YoY) v/s domestic advances Dep. Gr. YoY % (RHS) Adv. Gr. YoY % (RHS)
(up 22% YoY and 9% QoQ). 3,500 35.0%
3,000
30.0%
(Rs bn)
2,500
Deposits grew by 30.1% YoY and 18.4%
2,000 25.0%
QoQ, as foreign deposits grew faster (up
1,500 20.0%
38% YoY and 22% QoQ) than domestic
1,000
deposits (up 29% YoY and 18% QoQ). 15.0%
500
0 10.0%
Domestic CASA deposits grew slightly at a
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
slower pace, by 18.3% YoY and 5.6% QoQ.
Resultantly, CASA ratio declined to 29.2%
from 32.5% in Q3FY11.
Source: Company Data, PL Research
Exhibit 4: Trend in domestic loan mix
Domestic advances grew by 22.2% YoY and Retail SME Agriculture Corporate
100%
9.4% QoQ, mainly driven by healthy 15.6% 11.6% 11.1% 10.6% 10.4% 10.1%
90%
growth seen in the agri (up 24.6% YoY and 80% 18.8% 18.5% 21.5%
17.2% 21.8% 22.3%
10.7% QoQ) and SME loans (up 20.4% YoY 70%
13.3% 13.6% 13.8%
and 27.7% QoQ). 60% 14.4% 13.3% 12.8%
50%
40%
Consequently, the share of SME loans in 30% 53.8% 57.2% 57.6% 54.6%
52.8% 53.3%
the overall loan mix increased to 21.5% v/s 20%
10%
18.5% in the previous quarter.
0%
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Source: Company Data, PL Research
May 02, 2011 4
Bank of India
Exhibit 5: Trend in QoQ change in gross and net NPAs
Slippages more than doubled on a QoQ
basis at Rs10.0bn, resulting into a 5.6% Incr. GNPA (Rs bn) Incr. NNPA (Rs bn) Net NPA % (RHS)
14.0 1.4
QoQ increase in the GNPAs. Provision 12.0 1.3
coverage (incl. technically w/off accounts) 10.0 1.2
declined to 72.2% v/s 74.5% in Q3FY11. 8.0 1.1
6.0 1.0
4.0 0.9
Assets worth Rs7.4bn were restructured 2.0 0.8
during the quarter on account of 0.0 0.7
substantial assets restructured from the ‐2.0 0.6
‐4.0 0.5
textile (Rs1.07bn) and hotel sector ‐6.0 0.4
(Rs973mn). However, cumulative
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
restructured book was up by just 2.9% QoQ
at Rs106.4bn or 4.9% of global advances
due to higher upgradations.
Source: Company Data, PL Research
Exhibit 6: Trend in slippages (based on previous year closing advances)
Gross slippages during the quarter more Fresh slippages Slippages (Ann. %) (RHS)
than doubled to Rs10.0bn (2.3% 12.0 2.5%
annualized) v/s Rs4.8bn (1.2% annualized)
10.0 2.0%
in the last quarter.
8.0
1.5%
(Rs bn)
Meanwhile, Rs972m worth loans slipped 6.0
from the restructured portfolio, taking the 1.0%
4.0
overall slippages from the restructured
portfolio to ~19%. 2.0 0.5%
0.0 0.0%
Q1FY11 Q2FY11 Q3FY11 Q4FY11
Source: Company Data, PL Research
Exhibit 7: Trend in sectoral breakup of gross NPAs
Proportion of NPAs from the services
Agri Industry Services Retail Foreign
segment increased during the quarter after
100%
steadily declining for the past three 8.2% 8.5% 9.2% 9.8% 9.5%
quarters. 13.3% 13.0% 14.2% 13.0% 14.9%
80%
60% 36.1% 27.3% 28.5%
Contribution of NPAs from the foreign 43.3% 33.3%
portfolio has remained largely stable in the
past few quarters. 40%
34.7% 33.7%
32.6% 32.1%
20% 26.5%
8.7% 9.8% 11.2% 15.2% 13.5%
0%
Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
Source: Company Data, PL Research
May 02, 2011 5
Bank of India
Income Statement (Rs m) Quarterly Financials (Rs m)
Y/e March 2010 2011E 2012E 2013E Y/e March Q1FY11 Q2FY11 Q3FY11 Q4FY11
Int. Earned from Adv. 131,032 155,002 207,980
246,170 Interest Income 48,217 51,556 54,675 63,069
Int. Earned from Invt. 44,643 51,717 66,871 78,007 Interest Expense 30,813 33,795 34,806 39,996
Others 3,105 10,798 7,440 9,237 Net Interest Income 17,405 17,761 19,869 23,073
Total Interest Income 178,780 217,517 282,291 333,415 Non Interest Income 5,859 5,845 6,482 8,231
Interest expense 121,220 139,411 196,194 225,541 CEB 2,500 3,007 2,838 3,468
NII 57,560 78,106 86,097 107,874 Treasury 1,000 360 592 1,266
Growth (%) 4.7 35.7 10.2 25.3 Net Total Income 23,264 23,606 26,351 31,304
Treasury Income 5,963 3,219 4,000 4,000 Operating Expenses 9,158 9,810 12,464 19,251
NTNII 20,203 23,199 25,240 29,342 Employee Expenses 5,738 6,031 8,369 14,616
Non Interest Income 26,166 26,418 29,240 33,342 Other Expenses 3,420 3,779 4,094 4,635
Total Income 204,946 243,935 311,532 366,757 Operating Profit 14,106 13,796 13,888 12,053
Growth (%) 5.6 19.0 27.7 17.7 Core Operating Profit 13,106 13,436 13,296 10,787
Operating Expense 36,678 50,682 48,230 53,943 Provisions 3,859 5,274 4,979 4,776
Operating Profit 47,048 53,842 67,107 87,273 Loan loss provisions 3,078 2,863 1,236 3,367
Growth (%) (13.8) 14.4 24.6 30.1 Profit before tax 10,247 8,522 8,908 7,277
NPA Provisions 17,543 10,543 8,937 11,257 Tax 2,995 2,355 2,377 2,340
Investment Provisions 2,435 247 1,139 (762) PAT before EO 7,251 6,168 6,532 4,936
Total Provisions 22,109 18,888 11,041 13,215 Extraordinary item — — — —
PBT 24,938 34,953 56,066 74,059 PAT 7,251 6,168 6,532 4,936
Tax Provisions 7,528 10,067 15,698 20,736 Key Ratios
Effective Tax Rate (%) 30.2 28.8 28.0 28.0 Y/e March 2010 2011E 2012E 2013E
PAT 17,411 24,886 40,367 53,322 CMP (Rs) 418 418 418 418
Growth (%) (42.1) 42.9 62.2 32.1 Equity Shrs. Os. (m) 526 547 547 547
Balance Sheet (Rs m) Market Cap (Rs m) 228,735 228,735 228,735 228,735
Y/e March 2010 2011E 2012E 2013E M/Cap to AUM (%) 8.0 6.5 5.6 4.7
Par Value 10 10 10 10 EPS (Rs) 33.1 45.5 73.8 97.4
No. of equity shares 526 547 547 547 Book Value (Rs) 243 290 351 438
Equity 5,259 5,472 5,472 5,472 Adj. BV (75%) (Rs) 225 276 340 433
Networth 142,300 171,551 206,184 253,772 P/E (x) 12.6 9.2 5.7 4.3
Adj. Networth 120,225 152,102 187,941 237,783 P/BV (x) 1.7 1.4 1.2 1.0
Deposits 2,297,619 2,988,858 3,526,853 4,232,223 P/ABV (x) 1.9 1.5 1.2 1.0
Growth (%) 21.1 30.1 18.0 20.0 DPS (Rs) 7.0 9.0 9.0 9.0
Low Cost deposits 639,631 731,385 856,473 1,062,927 Dividend Yield (%) 1.7 2.2 2.2 2.2
% of total deposits 27.8 24.5 24.3 25.1 Profitability (%)
Total Liabilities 2,749,665 3,511,725 4,093,404 4,918,770 Y/e March 2010 2011E 2012E 2013E
Net Advances 1,684,907 2,130,962 2,564,010 3,097,889 NIM 2.3 2.5 2.3 2.4
Growth (%) 17.9 26.5 20.3 20.8 RoAA 0.7 0.8 1.1 1.1
Investments 670,802 858,724 952,250 1,142,700 RoAE 12.6 15.8 21.3 23.2
Total Assets 2,749,665 3,511,725 4,093,404 4,918,770
Efficiency
Source: Company Data, PL Research.
Y/e March 2010 2011E 2012E 2013E
Cost‐Income Ratio (%) 43.8 48.5 41.8 38.2
C‐D Ratio (%) 73.3 71.3 72.7 73.2
Business per Emp. (Rs m) 101 128 149 176
Profit per Emp. (Rs m) 4 6 10 13
Business per Branch (Rs m) 1,231 1,501 1,699 1,949
Profit per Branch (Rs m) 5 7 11 14
Asset Quality
Y/e March 2010 2011E 2012E 2013E
Gross NPAs (Rs m) 48,822 48,116 49,306 53,298
Net NPAs (Rs m) 22,075 19,450 18,243 15,990
Gr. NPAs to Gross Adv. (%) 2.9 2.2 1.9 1.7
Net NPAs to Net Adv. (%) 1.3 0.9 0.7 0.5
NPA Coverage (%) 54.8 59.6 63.0 70.0
Source: Company Data, PL Research.
May 02, 2011 6
Bank of India
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
60% 54.7%
50%
% of Total Coverage
40%
28.5%
30%
20% 14.6%
10%
2.2%
0%
Buy Accumulate Reduce Sell
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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May 02, 2011 7
