Bank of India (BOI) has reported an outstanding growth in profits backed by higher other income and improvement in operating margins. A rise of 123% in profits before tax is better than expected.
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)
The bank's operating margins during the quarter rose by 230 basis points to 30.9%. This was mainly due to less than proportionate fall in lending rates compared to a decline in deposit rates. BOI's other income witnessed a sharp rise of 34%. The contribution of other income to total income also increased to 13.3% from 11.1% in 1QFY01.
Reduction in other expenses inflated profits further. (Salary cost formed 74% of other expenses.) Cost to income ratio of the bank declined substantially to 54% from 74% in 1QFY01. This was the result of VRS. In FY01 7,768 employees of the bank opted for VRS, which would save salary cost of Rs 1.7 bn annually for the bank. In FY01, BOI provided Rs 3.3 bn as VRS cost (Rs 8.9 bn total VRS cost). The bank will provide the balance amount equally in the next four years.
During the quarter BOI also increased provision for non performing assets to Rs 700 m. This will improve its provision coverage ratio and show better picture of balance sheet.
At the current market price of Rs 17, BOI is trading at a P/E of 2x and Price/Book value ratio of 0.3x FY02 projected earnings. The bank is likely to maintain high growth in profits in the next few years with employee cost savings and improvement in quality of assets. The bank has decided to reduce the equity capital by repayment, to the extent of Rs 3 bn to the Central Government. This will effectively increase earnings per share of the bank, resulting in better valuations.
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