Thursday, August 4, 2011

Bank of India - Buy, Sell, or Hold, Based on Q1 Results?

Bank of India (BSE: 532149, NSE: BANKINDIA), country’s fifth largest public sector bank by revenue, has delivered exceptional returns to investors during a couple of time-frames in its listed history. But what is the outlook now after first quarter results?

Bank of India's Q1 revenue has soared year-on-year from Rs. 5407.62 crore to Rs. 7293.68 crore, which is a 34.88% robust jump. The quarter-on-quarter growth is from Rs. 7130.07 crore, which is a modest 2.29% increase.

The year-on-year Q1 net profit of Bank of India dipped from Rs. 725.13 crore to Rs. 517.53 crore, which is a troubling 28.63% dip. However, the sequential profit grew from Rs. 493.64 crore, which is a modest 4.84% growth.

The net profit margin (NPM) of Bank of India's core business has taken a hit on an year-on-year basis, almost halving from 15.04% to 7.80% now.

Exceptional items that affected Bank of India's profits this time include employee benefits, pension option, and gratuity limits, with indication that pressure from such items would continue.

Net NPAs of Bank of India stood at 1.27%, up from 0.91% in the previous quarter.

Return on Assets at Bank of India fell marginally from 0.61% to 0.59% sequentially, and significantly from 1.05% year-on-year. Return on Equity for FY’11 was 14.39%, which is healthy if not outstanding.

Since current valuation of Bank of India is at 1.35 times the book-value, new investors should wait for the upcoming quarters to see whether the strong performance in revenue eventually permeates to a turnaround in profit. 

For existing investors, it is a 'hold' or 'sell' depending upon the entry price, and considering the tough interest regime.

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