JP Morgan recommends `Underweight’ rating on Bank of India
BOI reported Q1FY11 net profit at 730 crore, up 70% q-o-q , which was significantly higher than consensus estimates.
By ET Bureau |
RESEARCH: JP MORGAN
RATING: UNDERWEIGHT
CMP: 434.30
JP Morgan recommends `Underweight’ rating on Bank of India. BOI reported Q1FY11 net profit at 730 crore, up 70% q-o-q , which was significantly higher than consensus estimates. A big surprise in margins and lower credit costs were the main reason for the profit beat. Asset quality has shown a smart improvement after three quarters of very high slippages. Asset quality held up much better than expected with gross and net NPAs (non-performing assets) contracting in Q1FY11. Net quarterly slippages were down to 50 bps from about 160 bps in FY10. As a result, credit costs fell by about 50% q-o-q in spite of increase in coverage. Provision coverage has now increased to 68%. Also, slippages from the restructured book were restricted to less than 100 crore in this quarter. Asset quality trend has been very positive in Q1FY11 and to some extent factored in the strong outperformance in the last one month. Also, the quantum in margin improvement was very surprising. JP Morgan’s `Underweight’ recommendation is based on bad asset quality trends over the last twothree quarters but Q1FY11 has been better than expectations on multiple parameters. They believe further stock performance would depend upon the sustainability of Q1FY11 asset quality trends.
RATING: UNDERWEIGHT
CMP: 434.30
JP Morgan recommends `Underweight’ rating on Bank of India. BOI reported Q1FY11 net profit at 730 crore, up 70% q-o-q , which was significantly higher than consensus estimates. A big surprise in margins and lower credit costs were the main reason for the profit beat. Asset quality has shown a smart improvement after three quarters of very high slippages. Asset quality held up much better than expected with gross and net NPAs (non-performing assets) contracting in Q1FY11. Net quarterly slippages were down to 50 bps from about 160 bps in FY10. As a result, credit costs fell by about 50% q-o-q in spite of increase in coverage. Provision coverage has now increased to 68%. Also, slippages from the restructured book were restricted to less than 100 crore in this quarter. Asset quality trend has been very positive in Q1FY11 and to some extent factored in the strong outperformance in the last one month. Also, the quantum in margin improvement was very surprising. JP Morgan’s `Underweight’ recommendation is based on bad asset quality trends over the last twothree quarters but Q1FY11 has been better than expectations on multiple parameters. They believe further stock performance would depend upon the sustainability of Q1FY11 asset quality trends.
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