Bank of India (BOI) has declared strong first quarter performance on the back of a sharp improvement in operating margins. The bank's net profits jumped by 47% YoY to Rs 1.8 bn in 1QFY03. Its interest income however, grew at a slower pace of 6% to Rs 14 bn.
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During the quarter, the bank's operating margins increased to 6.6% from 3.1% in the comparable previous year. The bank's VRS initiative launched last year, is reflected positively in 1QFY03's financial performance, as its cost to income ratio declined to 50% from 52% in FY02. BOI wrote off Rs 340 m in 1QFY03 (Rs 400 m in 1QFY02) towards VRS expenses. which is included in operating expense. The bank aims to go for a second round of VRS, which would further improve its efficiency and bring down costs.
The bank's income from both advances and investments slowed down significantly in 1QFY03. Stiff competition from private banks coupled with a downturn in economy impacted the bank's income growth. The bank's core interest income witnessed a marginal rise of 7%. Non-food credit growth is expected to pick up in the current fiscal which could give some boost to this stream of revenues. The growth in fee based income was however strong at 44%, forming 17% of total income.
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At the current market price of Rs 31, the stock is trading at an unadjusted price to book value ratio of 0.6x and P/E of 2x 1QFY03 earnings. Valuations of the bank will be re-rated once its asset quality and employee productivity improves.
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