NEW DELHI, March 30: For the fiscal year ended March 1998, Bank of India's earnings estimates have been revised downward to Rs 405.3 crore. Although the report prepared by Kotak Securities retains the previously assigned "market outperformer" rating for the bank, it has now fixed a lower 12-month target price of Rs 57. This price gives a discounting of 7.5X based on the 1999 EPS and a price-to-book value of 1.4.According to the investment banker, "A combination of under-appreciated positives, improving fundamentals and low valuation presents the investor with a limited downside at the current price." According to Kotak's estimates, although BoI's operating profit will grow by a healthy 22 per cent, due to higher than expected rise in provisions for loan-loss and investments, net profit growth will be lower at 12.6 per cent. Another factor about which investors are concerned with is the speed and extent of changes in the top management of the bank. These events tend to overshadow the considerable positivesin the bank's recent performance.
BoI's operating profitability is improving, expense levels are falling and, relative to its peers, provisioning has been more conservative. Though the NPL ratio did rise in the first half, however it is likely to stabilise in the second half. Also its loan-loss cover of 45 per cent is higher than most of its peers. Loan-loss provisions cover about half the gross NPLs of the bank. More than 70 per cent of investment in government securities are marked-to-market. In the first half of 1997-98, provisions were significantly raised to cover the growth in NPLs.
In order to improve transparency, the bank is now announcing quarterly results. BoI is the first state-owned bank to start this practice. Another initiative in the first half of fiscal 1998 was the appointment of two special auditors to verify the asset classification in select branches covering more than 70 per cent of its domestic loans. Commencing of bullion trading in 1998 is another positive for the bank. By thethird week of March, its turnover in the bullion market was around Rs 400 crore.
Kotak believes that with the continuing financial liberalisation, there might be a shakeout in the banking industry with only a few large banks surviving. "We do not yet see any signs of consolidation of state-owned banks happening in the foreseeable future."
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
