Scripscan:Bank of India
cmp:288
Code:532149
Story:BOI reported Q1FY13 PAT of Rs8.9bn, better-than-expected largely due to recoveries from written-off accounts and write-back of investments. Depreciation, otherwise growth trends remain very weak and domestic balance sheet consolidation is also getting reflected in weak core fee income. Asset quality disappointed after two quarters of relatively strong slippage performance but recoveries/upgrades trend (including written‐off accounts) has remained strong for last three quarters now.Overall asset quality performance has been better than some PSU peers but relative valuations do not stack in BOI’s favour, at just <5% discount to PNB/BOB with ~25bps sub-optimal ROAs.FX adjusted loan growth was 15.5%, with domestic book growing by just 14%. SME book has seen a YoY contraction and management is focusing on retail which I believe is prudent in this environment. Corporate loan growth continues to be driven by sensitive sectors, with ~70% YoY growth coming from Infra, Metals, Textiles and Jewellery which adds to the risk profile. Core fee income (incl. Fx) also contracted by 6% YoY in-line with consolidation in the loan portfolio.Margins disappointed and oneoffs interest rate reversals on restructuring (Air India) and NPAs lead to ~60bps QoQ fall in margins.I believe margins can recover by ~25-30bps from Q2FY13 as such large one-offs will be absent but any large slippages will have an impact on NIMs.Slippages at Rs17.5bn was much higher than expected and reverses the improving trend seen in the last two quarters. Though slippages disappointed, recoveries/upgrades have been strong, more so from written-off accounts for the last 3-4 quarters and has aided to keep credit costs under check (~1% of loans). Outlook on asset quality continues to remain uncertain with deficient monsoon adding to the uncertainty.Go for a SBI or an Yes bank for superior returns.
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