X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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: Out of the red? - Views on News from Equitymaster
  • MyStocks

MEMBER'S LOGINX

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

BOI: Out of the red?
Jul 25, 2005

Performance Summary
Bank of India continued to under perform its peers in the first quarter of FY06, across parameters. However, it is important to note that the bank has posted positive bottomline results (6% growth YoY) for the first time after 3 consecutive quarters of profit decline. The drop in net interest margins has further accentuated the pressure on cost of funds that the bank is facing. Although asset quality has improved over the corresponding quarter of the previous year, the bank continues to face capital crunch.

Rs (m) 1QFY05 1QFY06 Change
Income from operations 14,086 15,645 11.1%
Other Income 2,750 2,944 7.1%
Interest Expense 8,702 10,056 15.6%
Net Interest Income 5,384 5,589 3.8%
Other Expense 4,527 4,867 7.5%
Net interest margin (%) 2.8% 2.3%  
Provisions and contingencies 1,332 1,392 4.5%
Profit before tax 2,275 2,274 0.0%
Tax 648 557 -14.0%
Profit after tax/ (loss) 1,627 1,717 5.5%
Net profit margin (%) 11.6% 11.0%  
No. of shares (m) 487.4 487.4  
Diluted earnings per share (Rs)* 13.4 14.1  
P/E (x)   8.7  
* (annualised)      

The under performer!
Bank of India (BOI) is the sixth largest bank in India both in terms of market share (5.3%) and asset size. The bank has a network of 2,600 branches inclusive of 19 foreign branches, and 250 ATMs. It has a large reach in the rural and semi-urban areas with more than 31% of aggregate deposits coming from these regions. Despite having a reasonable asset size, the bank, unlike its peers, has not been able to capitalise on the buoyancy in the sector during FY05.The fact that it has a significant amount of non-performing assets (NPAs) is also one of the crucial concerns regarding the bank.

What has driven performance in 1QFY06?
Advance growth
(Rs m) 1QFY05 1QFY06 % of total Change
Food 141,191 155,944 26.9% 10.4%
Non food 339,919 423,976 73.1% 24.7%
Retail 84,300 107,690 25.4% 27.7%
Wholesale 255,619 316,286 74.6% 23.7%
Total advances 481,110 579,920   20.5%
Stagnated asset growth…: The bank has witnessed a growth of 21% YoY in its advance book during 1QFY06 which is almost flat on a sequential basis (QoQ). While the domestic advances grew at 24% YoY, incremental off takes were slower in the overseas markets (11% growth YoY). Food and non-food credit segments witnessed a growth of 10% and 25% YoY respectively. The share of retail credit improved to 25% of non-food credit due to 28% YoY growth in this segment, while the corporate segment also grew at 24% YoY. Growth in the bank’s advance portfolio continues to be lower than the industry average.

…erodes margins: On the liability (funding) side too the bank remains inept in garnering sufficient low cost deposits (grew 12% YoY). The net interest income of the bank has had a nominal growth of 4% in 1QFY06 and the net interest margin (2.8% in 1QFY05) has dipped to 2.3% in the previous quarter. It is also worth a mention that ‘priority sector lending’, which is typically low yielding, comprises 51% of the net bank credit. This indicates that the bank has not been very prudent in its asset allocation.

Other ‘income’ stabilising: The losses in bank’s treasury portfolio that has been the biggest drag in its bottomline for the past few quarters has finally shown signs of abating. The bank is now the only entity in the PSU banking sector with more than 80% of investments in the HTM (held to maturity) category and lower duration of the investments in the AFS (available for sale) basket. However, growth on the fee income side has yet to pick up pace.

Better asset quality: Incremental provisioning has improved the bank’s provision coverage ratio from 47% in 1QFY05 to 53% in 1QFY06. This is also due to the fact that the bank has successfully pruned its high NPA levels (4% in 1QFY05) to 2.6% in 1QFY06. All said, the bank continues to persist at the bottom of the league when it comes to asset quality. Reduction in gross NPA levels (5.3% in 1QFY06) also suggests arrest of incremental delinquencies.

What to expect?
At the current price of Rs 112, the stock is trading 1.7 times our estimated FY07 adjusted book value. Not only has the bank been under-performing its peers in terms of asset growth, the lower margins and eroding net worth have pared the returns per share. Also the capital adequacy ratio of 10% seems insufficient to sustain future credit growth. Staff opposition has put the bank’s proposed merger with Union Bank of India under wraps. However, the treasury book being well hedged, BOI now has better chances of improving its profitability. Given the slow momentum in the bank’s growth, the current price does not position the stock favorably on the risk return matrix.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

BANK OF INDIA SHARE PRICE


Feb 23, 2018 (Close)

TRACK BANK OF INDIA

  • 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

BANK OF INDIA 5-YR ANALYSIS

COMPARE BANK OF INDIA WITH

MARKET STATS