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BOI: A growth story - Views on News from Equitymaster
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  • Oct 30, 2001

    BOI: A growth story

    Bank of India's (BOI) second quarter performance was powered by higher other income. While profits jumped by 71%, operating profits grew in double digits. The bank's operating margins too rose sharply by 160 basis points in the current quarter.

    (Rs m) 2QFY01 2QFY02 Change
    Interest Income 13,610 14,530 6.8%
    Other Income 1,660 2,604 56.8%
    Interest Expenditure 9,290 9,686 4.3%
    Operating Profit (EBDIT) 4,320 4,843 12.1%
    Operating Profit Margin (%) 31.7% 33.3%  
    Other Expenditure 3,760 3,367 -10.5%
    VRS provision - 276 -
    Profit before Tax 2,220 3,805 71.4%
    Provisions & Contingencies 1,097 1,938 76.6%
    Tax 333 516 54.8%
    Profit after Tax/(Loss) 790 1,352 71.1%
    Net profit margin (%) 5.8% 9.3%  
    No. of Shares (eoy) 639 639  
    Diluted Earnings per share* 4.9 8.5  
    P/E (at current price)   2.0  

    The bank's core income growth however, slowed down and was up by just 7%. Sluggish economic environment has taken its toll on the bank's interest income growth. However, other income which consist of commission and other fee based income continued to show buoyant growth rates. The contribution of other income to total income increased to 15% from 11% in 2QFY01.

    During the quarter, the bank's cost to income witnessed a steep decline to 49% from 63% in 2QFY01. The ratio stood at 61% in the June quarter of the current fiscal. BOI's successful implementation of VRS plan helped it in reducing employee costs and consequently other expenses.

    However, the bank's provision for non-performing assets (NPAs) increased rapidly by 77%. This could be to increase the provision coverage ratio, which stood at 40% in FY01. Also, a downturn in the industrial activity could have impacted the bank's asset quality, which has resulted in higher provisions in the current quarter.

    At the current market price of Rs 17, BOI is trading at a P/E of 2x and Price/Book value ratio of 0.4x FY02 projected earnings. The bank is likely to maintain high growth in profits in the next two quarters with employee cost savings. 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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