Buy Bank of India
Bank of India
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 395
Morgan Stanley reiterates ‘overweight’ rating on Bank of India (BoI) with a target price of Rs 525. BoI reported Q3 FY08 earnings of Rs 510 crore, up 101% y-o-y and 20% on a sequential basis — higher than the expectation of 69% y-o-y growth. The bank’s core operating profit grew 74% y-o-y on sequential improvement in margins, robust fee income growth and control on operating expenses. In fact, the bank overprovided costs during the quarter — it has proactively provided for wage arrears for FY08 on an estimated basis. Asset quality strength persisted, with BoI’s coverage ratio improving to 78% in Q3. Productivity is improving across all areas — the bank opened 101 branches last year, without adding a single employee. Core earnings were strong. BoI’s continuation of strong core earnings momentum is also impressive. This is the sixth consecutive quarter the bank has reported earnings growth of over 50% y-o-y. Even core earnings growth has averaged 40% y-o-y during this period. The stock is trading at 10x FY09E earnings, 2x book with an RoE of 21%, which is very attractive.
