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.
|Operating Profit (EBDIT)
|Operating Profit Margin (%)
|Profit before Tax
|Provisions & Contingencies
|Profit after Tax/(Loss)
|Net profit margin (%)
|No. of Shares (eoy)
|Diluted Earnings per share*
|P/E (at current price)
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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