In the Bank and Financial Services sector, we are very bullish on Bank of India (BOI) for two reasons – strong growth prospects and low price-earnings ratio – compared to its peers in the private and public banking space. Bank of India is the Country’s third largest government bank by number of branches.
Bank of India has declared its fourth quarter results. Bank of India’s Q4FY09 results show PAT growth of 7% YoY to Rs 757 crore. Total global business of the bank grew 26% YoY to Rs 334440 crore, contributed by global deposit growth of 26% to Rs 189708 (domestic deposit growth of 27% to Rs 159487 crore) and global advance growth of 26% to Rs 144732 crore (domestic advance growth of 26% to Rs 115354 crore). GNPA rose by 28% YoY to Rs 2471 crore (1.71%) while NNPA was well controlled up 6% to Rs 628 crore (0.4%) with provision coverage slipping by 667 bps to 74.6%.
Total income grew by 19% YoY to Rs 2219 crore backed by NII growth of 18% to Rs 1433 crore and non interest income by 20% to 785 crore. Operating profit grew by 16% to Rs 1408 crore because of rise in operating expense by 23% to Rs 811 crore. The bank restructured assets worth Rs 5049 crore (1.8% of domestic loan book) during the year.
ICICIDirect.com have pointed out that the growth of global advances (32% YoY) was fuelled equally by domestic and international advances. The domestic advance mix is very healthy with almost 50% corporate book and retail only 15%. SME will be the focus area of the bank going ahead which currently comprises 22% of the domestic book.
It is also pointed out that the global deposits growth of 26% was contributed by domestic deposit growth of 27% and international deposit growth of 23%. CASA slipped by 500 bps YoY to 31%, since contribution of savings deposit to aggregate domestic deposit slipped by 300 bps and current deposits actually reported de-growth of 3%.
There has been a moderation in loan growth with downward bias on NIM’s, There has also been a moderation in fee income and inch up in slippages. BOI may be expected to register PAT CAGR of 14% over FY09-FY10E.
The asset quality can also be expected to face some Pressure.
The GNPA are expected to be at 2.2% and 2.3% in FY10E and FY11E respectively.
Major contributor to Non interest Income was trading gains, which grew by 273%.
The core non interest income (CEB) posted 23% YoY growth which was inline with core business growth Going forward the fee income is expected to moderate and grow at a CAGR of 19% over FY09-FY11E.
The investment book grew by 27% YoY but AFS book showed de-growth since bank has sold many high yielding securities in the past two quarters.
The bank has the capacity to generate higher than industry average ROE’s. This will fetch it premium valuations over its peers like Bank of Baroda, Allahabad Bank etc.