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BOI: Surpassing expectations - Views on News from Equitymaster
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  • Jan 29, 2001

    BOI: Surpassing expectations

    Bank of India has recorded a remarkable 83% jump in its net profits to Rs 1.3 bn in 3QFY01. The bank's operating margins also improved considerably to 32.4% from 29% in 3QFY00. This is due to higher proportion of saving account deposits (19% of total deposits) compared to other banks which implies relatively lower cost of funds for the bank.

    (Rs m) 3QFY00 3QFY01 Change 9mths FY00 9mths FY01 Change
    Interest Income 11,730 13,530 15.3% 35,020 39,100 11.7%
    Other Income 1,640 1,800 9.8% 4,790 4,950 3.3%
    Interest Expenditure 8,330 9,140 9.7% 25,780 26,970 4.6%
    Operating Profit (EBDIT) 3,400 4,390 29.1% 9,240 12,130 31.3%
    Operating Profit Margin (%) 29.0% 32.4%   26.4% 31.0%  
    Other Expenditure 3,330 3,620 8.7% 10,120 11,030 9.0%
    Profit before Tax 1,710 2,570 50.3% 3,910 6,050 54.7%
    Provisions & Contingencies 1,010 1,290 27.7% 2,150 3,320 54.4%
    Profit after Tax/(Loss) 700 1,280 82.9% 1,760 2,730 55.1%
    Net profit margin (%) 6.0% 9.5%   5.0% 7.0%  
    No. of Shares (eoy) 638 638   638 638  
    Diluted Earnings per share* 4.4 8.0   3.7 5.7  
    P/E (at current price)   1.8     2.6  

    BOI's performance was equally good for the nine months ended December 2000. Interest income increased by 12% led by higher credit growth and profits surged by 55% during the period.

    The bank's global deposit base witnessed a growth of 14% while advances increased by 17%. Its credit to deposit ratio improved to 62% during the first nine months compared to 60% in the corresponding previous period. However, its low capital adequacy ratio of 9.6% is likely to reduce the pace of growth in the future. To improve the ratio, BOI has successfully completed a subordinated bond issue aggregating to Rs 2 bn in the private placement market during the quarter to support its future assets growth.

    BOI has also implemented a VRS to right size the staff strength and has received applications from 7,766 employees (approximately 15% of total employees). The results for the nine months do not however, reflect the VRS expenses. The payment for VRS expenses is likely to adversely affect its full year results. Nevertheless, the saving in salaries would improve its ROE FY02 onwards (7% ROE in FY00).

    At the current market price of Rs 15, BOI is trading at a PER of 3 times its 9 months FY01 annualised earnings. The bank's Price/Book value ratio of 0.4 times which is amongst the lowest in banking sector. Its focus on enhancing capital adequacy ratio, improvement in NPA ratio (7.3% as on December 2000) and higher return on equity in the future could trigger a re-rating in the stock.



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