Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
BOI: Should you subscribe? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

BOI: Should you subscribe?

Mar 22, 2005

'Assessing quality of assets is imperative for valuing a banking entity', may be a statement sounding clichéd. But when speculations of prospective mergers and public issue announcements cause investors to go gung-ho on the banking sector, it becomes important to reinstate these basic doctrines of investing.Bank of India, the sixth largest bank in the country, both in terms of market share (5.3%) and asset size, has been riding high on speculations of merger with Union Bank of India. The announcement of its second public issue envisaged during 1HFY06 only fuelled the 'optimism' further.

The bank has witnessed a reasonable growth in its advance book during 9mFY05, particularly during the second and third quarters. At the end of 9mFY05, retail and corporate credit (of the non food credit segment) accounted for 22% and 68% of the loan book respectively. Food credit growth on the other hand, dampened on the back of higher allocation to non-food credit and accounted for only 10% of the total disbursements.

In recent times…
Despite garnering a larger share of low cost deposits (40%) in an attempt to prune its cost of funds, lowering yields on advances and investments have caused the bank's net interest margins to slide further. What spells concern is that the healthy growth in advance book has also failed to compensate for the shrinking margins. Going forward, inability to improvise on this situation may imply more pressure on the bank's operating margins.

Despite having transferred G-Secs of Rs 3.8 bn to the 'held to maturity' category in 2QFY05, the bank has booked treasury losses to the tune of Rs 1.5 bn in 3QFY05. In the rising interest rate scenario, treasury operations are unlikely to yield the bank any gains in the coming quarters. The bank's other income (which tanked by 36% YoY in 9mFY05) has caused its annualised FY05E EPS to condense further, thereby aggravating the P/E valuations for the current fiscal (FY05).

Lower margins or timid growth rates are never as much of a concern as is asset quality. In case of BOI, its net NPA to advances figure (3.9%), which puts it at the bottom of the larger banks' league in terms of asset quality, negates all potential upsides. Although the quantum of loss assets have been successfully reduced from 5.5% in 1HFY04, the possibility of the same declining further remains questionable in the event of no treasury gains.

What to expect?
At the current market price of Rs 116, the stock is trading 1.4 times its 9mFY05 book value.

BOI is envisaging its second public issue of 125 m shares by 1QFY06. Assuming that the shares get valued at the current market price and get fully subscribed, the issue will infuse additional capital to the tune of Rs 14.5 bn to the bank's networth.

Valuations Post 2nd public issue
Price to Earnings (x)13.610.511.4
Price to adj. Book value (x)2.51.9 1.6

Although this brings the book value per share to Rs 111 in FY07, the net NPA per share of Rs 41 brings the adjusted book value per share to Rs 70. We can thus comprehend that the forward price to adjusted book value (P/Adj.BV) valuations remain overstated for the stock despite accretion to book value. With better and more visible stories available in banking and other sectors, we see no reason for investors to compromise on their 'investment quality'.

Equitymaster requests your view! Post a comment on "BOI: Should you subscribe?". Click here!


More Views on News

BANK OF INDIA Announces Quarterly Results (3QFY19); Net Profit Down 102.4% (Quarterly Result Update)

Jan 30, 2019 | Updated on Jan 30, 2019

For the quarter ended December 2018, BANK OF INDIA has posted a net profit of Rs 47 bn (down 102.4% YoY). Sales on the other hand came in at Rs 102 bn (up 9.0% YoY). Read on for a complete analysis of BANK OF INDIA's quarterly results.

BANK OF INDIA Announces Quarterly Results (2QFY19); Net Profit Down 745.7% (Quarterly Result Update)

Nov 14, 2018 | Updated on Nov 14, 2018

For the quarter ended September 2018, BANK OF INDIA has posted a net profit of Rs 12 bn (down 745.7% YoY). Sales on the other hand came in at Rs 98 bn (down 1.3% YoY). Read on for a complete analysis of BANK OF INDIA's quarterly results.

Bandhan Bank IPO: A Microlender Turned Profitable Bank (IPO)

Mar 12, 2018

Is the IPO of one of India's newest private sector bank, Bandhan Bank, worth applying for?

MAS Financial Services Ltd. (IPO)

Oct 5, 2017

Assets Under Management have increased at a CAGR of 33.3% in the preceding five years. The asset quality has remained intact with GNPAs hovering around 1%. With fundamentals looking good, should one subscribe to this IPO?

The Pied Pipers of 'Buy High, Sell Higher' (The 5 Minute Wrapup)

Jul 14, 2017

What should you make of Ola drivers turning day traders and Radio Jockeys giving opinion on the Sensex?

More Views on News

Most Popular

3 Indian Stocks with Amazon-Like Potential(Profit Hunter)

Apr 10, 2019

We have identified 3 stocks with huge wealth building potential which meet our 'Click of a Button' criteria.

This Company is Making a Big Comeback and You Can Now Profit from Its Example(The 5 Minute Wrapup)

Apr 10, 2019

How Dell got its mojo back.

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

Pocketing Massive Gains with HDFC And HDFC Bank(Profit Hunter)

Apr 12, 2019

Here's how one could have generated gains of Rs 59,250 in 10 days by trading HDFC and HDFC Bank with a capital of Rs 4 lakh.

A Simple 3-Point Investing Manifesto for You the Indian Investor(The 5 Minute Wrapup)

Apr 11, 2019

A must have checklist for every investor in the Indian stock market.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Apr 23, 2019 09:29 AM


  • Track your investment in BANK OF INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks