Bank of India – Invest In A Staggered Manner

Bank of India (BOI) posted its June quarter numbers which, once again, disappointed the streets. Post its results, in around six trading sessions the scrip has moved southwards by as much as 6 per cent. The bank, which showed some initial signs of regaining the investors’ confidence from its March quarter numbers earlier, has disappointed the investors as the June quarter results have shown deteriorating asset quality coupled with falling margins.

We had advised our readers to invest in the scrip in a staggering manner when we had given the March quarter result update. We would like to take some credit as the scrip after that had seen upwards movement, rising almost 15 per cent. However, with the disappointing June quarter numbers the scrip has fallen below the price which it was trading three to four months ago. We at Dalal Street Investment Journal, have analyzed Bank of India’s June quarter 2012 numbers which will further help our readers in their decision making process. The following are the key parameters of the bank:

BOI, which had shown some strength on the asset quality front in the March quarter result, has this time disappointed as its NPA levels have deteriorated further. Its net NPA increased by 42 basis points to 1.69 per cent on a YoY basis while it surged by 22 basis points on a sequential basis. The provision coverage ratio (PCR) decreased substantially by 590 basis points to 60.86 per cent on a YoY basis.

The bank’s margin expanded on a YoY basis but contracted sequentially. The net interest margin (NIM) expanded by 8 basis points to 2.27 per cent on a YoY basis. However, it had a fall of 59 basis points on a sequential basis. Further, as on June 30. 2012 its capital adequacy ratio (CAR) stood at 11.42 per cent with Tier 1 CAR at 8.29 per cent. As on June 30, 2012 its deposits grew 15.66 per cent to Rs 33,898.26 crore while the advances grew by 22.83 per cent to Rs 26,416.16 crore. The CASA ratio improved by 156 basis points and stood at 32.04 per cent.

Wholesale banking posted a strong performance compared to other banks. The revenue from the same increased by 28 per cent to Rs 4,030 crore while profit from the same increased by 65 per cent to Rs 745 crore. The treasury segment showed robust growth in bottomline as profit from the same stood at Rs 362 crore against Rs 72 crore in a similar period last quarter.

Overall we believe that the bank has again shown signs of being in trouble particularly in terms of their asset quality. One has to watch out for the bank’s net NPA as there could be a probability that it may see rise going ahead. On the valuation front the bank is available at a price to book value of around 0.85 times which should be considered as cheap. There could be some downside of around 5 to 7 per cent from the current level (Rs 291). However, investing in the scrip in a staggering manner would garner better returns over the long term horizon.