Maintain neutral on Bank of India with target of `85: Motilal Oswal

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Updated: May 26, 2016 8:09 AM

Bank of India (BOI) reported net loss (Rs 35.9 billion) for the fifth consecutive quarter on adjusted basis. Continued weakness in asset quality and core PPoP (-46% y-o-y; -33% q-o-q) marred overall performance.

Bank of India (BOI) reported net loss (Rs 35.9 billion) for the fifth consecutive quarter on adjusted basis. Continued weakness in asset quality and core PPoP (-46% y-o-y; -33% q-o-q) marred overall performance. While headline NIM improved 11bp q-o-q (2.07%), adj. for interest on IT refund (`4.2 billion) margins continued to trend lower.

Asset quality remained weak, with slippages increasing to `168 billion (annualized ratio of 17% v/s 9% in Q3FY16); overall slippage ratio increased to 10% in FY16 v/s 4.5% in FY15. During Q4FY16, 30% of slippages were AQR related (`50 billion) –mainly in iron and steel, power and roads. Fresh additions to restructured loans (RL) were Rs 1.8 billion (v/s Rs 1.6 billion in Q2).

Further, `7.3 billion of SEB debt was classified as NPA (balance under ‘UDAY’ scheme). Asset quality performance remained weak, with higher levels of stress addition. Our key concerns are weak capital position (CET1- 8%), subdued return ratios (with subdued return ratios ROA of 0.2-0.3% and sub-10% RoE, and additional provisioning on SRs/loss amortization on sale of assets.

Maintain neutral with a target price of `85 (0.25x FY18E BV). During the quarter, BOI saw `35.3 billion of SEB debt conversion under ‘UDAY’ scheme; additional `23.5 billion of SEB debt is expected to get converted in FY17.

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