Bank of India's Q1FY20 results (Underperformer) - Asset quality deteriorates

Q1FY20 results

• BOI reported PAT of Rs2.4bn against our expectation of loss due to lower provisions. PAT grew 155% yoy (on a low base) but declined 4% qoq. Slippage rose qoq from Rs31bn to Rs37bn and was higher than management guidance of Rs25bn.
• Loans growth remained weak at 2% yoy. Domestic loan growth was higher at 12% while overseas loans declined 32%. Within domestic, retail grew 16% and corporate grew 18%.
• NIM declined 26bps to 2.67% due to lower yield on assets while cost of funds remained unchanged. NII grew 3% yoy.
• Fees grew 21% yoy on a low base but declined 15% qoq. Total non-interest income grew 93% yoy. The growth looks huge because the bank made a trading loss in 1Q19.
• Opex grew 15% yoy.
• Loan loss provisions grew 25% qoq.
• Core operating profit declined 10% yoy.
• Slippage rose to Rs37bn from Rs31bn. Mcnally Bharat of Rs4bn and Jet of Rs2.6bn were the major corporate accounts that slipped. The slippage ratio remains high at 4.5% versus 3.6% qoq. Mgmt had guided to slippage of Rs25bn for 1Q. GNPAs rose 2% qoq. Total stress loans rose 6% qoq and remain uncomfortably high at 22% of total loans
• Exposure to key accounts: DHFL – Rs40bn – became SMA1 in 2Q, Essel Group – Rs3.8bn, IndiaBulls Housing – Rs35bn, ADAG – Rs20bn of which Rs13bn is NPL and Rs8bn to RCap is standard. Exposure to Coffee Day is very small. Exposure to NCLT I & II accounts is Rs59bn with PCR of 100%.

Valuation and view

While BoI’s results were better than expected, the earnings rebound was on a low base and driven by lower provisions. Return ratios and loan growth remain weak, while stress loans remain uncomfortably high. We maintain Underperformer. We cut TP to Rs60.