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BOI: Margins continue to rise

Jul 15, 2002

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.

(Rs m)1QFY021QFY03Change
Income from operations 13,326 14,122 6.0%
Other Income 1,991 2,864 43.9%
Interest expense 9,211 9,429 2.4%
Net interest income 4,115 4,693 14.0%
Other expenses 3,702 3,762 1.6%
Operating Profit 413 931 125.4%
Operating Profit Margin (%)3.1%6.6% 
Provisions and contingencies 700 1,423103.4%
Profit before Tax 1,704 2,37239.2%
Tax 500 60120.1%
Extraordinary items - - -
Profit after Tax/(Loss) 1,204 1,77247.2%
Net profit margin (%)9.0%12.5% 
No. of Shares (m) 638.0 488.1  
Diluted Earnings per share*9.914.5 
P/E Ratio 2.1 

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.

Income breakup
(Rs m)1QFY021QFY03Change
Interest on advances 8,095 8,635 6.7%
Income from investments 4,395 4,800 9.2%
Interest on balance with RBI 799 685 -14.3%
Others 37 1 -96.5%
Total 13,326 14,122 6.0%

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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