‘Sell’ BoI, target price at Rs 140: Ambit

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Mumbai | Updated: November 14, 2015 1:35:49 AM

Bank of India continued its disastrous streak in 2QFY16, with net loss of Rs 1,126 crore.

Bank of India continued its disastrous streak in 2QFY16, with net loss of Rs 1,126 crore. Asset quality remained under severe pressure, with very high rate of fresh slippages (6.5% of loans, annualised) and credit cost of 310bps (vs 220 bps in 1QFY16). Operating profit declined 32% Y-o-Y and was 18% below our expectation.

We do not expect profitability to materially recover in immediate future, as: (1) exposure to stressed sectors continues to rise (infra loans up 9% YoY vs loan book decline of 3%), (2) rate of fresh NPA accretion stays elevated, (3) there are unamortised provisions of ~Rs 700 crore, and (4) weak CET1 (7.6%) constrains balance sheet growth.

After reporting a loss in FY16, we expect RoA to stay muted at ~0.3%, even in FY17. We remain SELLers with a target price of Rs 140, valuing the bank at 0.3x Mar’17E BVPS.

Bank of India (BOI) reported 2QFY16 net loss of R1,126 crore vs PAT of Rs 786 crore in 2QFY15.

Asset quality remained under severe pressure, with very high rate of fresh slippages (6.5% of loans, annualised) and credit cost rising to 310bps (vs 135 bps in FY15 and 220bps in 1QFY16). Total stressed assets rose to 12.5% (vs 11.5% at end-1QFY16). The operating performance was weak too, with operating profit down 32% YoY, 18% below of our expectation.

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