Recommendation: Buy
CMP = Rs 361
Price target: Rs 458
Key points:
- Q4FY2008 results of Bank of India were above our expectations. The profit after tax (PAT) was Rs 757 crore, indicating an impressive growth of 69.2% yoy. The net interest income for the quarter came in at Rs 1,216.8 crore, up 25.7% yoy on the back of continued robust growth in advances and expansion in net interest margin (NIM).
- The reported NIM for the quarter stood at 3.24%, indicating an expansion of 10 basis points yoy. The improvement in NIM was largely driven by margin expansion in international business, while the margin for the domestic business was flat at 3.71%. The non-interest income was up 13.3% yoy to Rs 653.3 crore. Importantly, the year-ago non-interest income included a one-time gain of Rs 52 crore from Nigerian oil bonds and a Rs 14 crore gain from sale of fixed assets.
- The operating expenses during the quarter were up marginally by 1.3% yoy to Rs 657.9 crore. The operating expenses growth was contained due to a 7.6% y-o-y decline in staff expenses, which helped to partly offset the 20.9% y-o-y increase in the other operating expenses. Consequently, the cost-income ratio improved significantly to 41.7% from 52.1% a year ago. Provisions and contingencies were down by 6.5% yoy, which in turn boosted the bottom line.
- The asset quality of the bank improved during the quarter as evidenced by a 8.1% yoy decline in the gross non-performing assets and a 27.1% yoy drop in the net non-performing assets. In line, the provisioning coverage ratio improved to 69.3% from 61.3% a year ago. The capital adequacy ratio (CAR) moved up to 12.95% from 11.58% a year ago, helped by qualified institutional placements (QIPs).
- At the current market price of Rs 360.7, Bank of India trades at 7.4x 2009E earnings per share (EPS), 4.1x 2009E pre-provisioning profit (PPP) per share and 1.8x 2009E book value (BV) per share.
- I maintain Buy recommendation on the stock with price target of Rs 458.
