4QFY18 Result Update May 28, 218 Market Cap. (Rs bn) 384 Free Float 36 Shares O/S (mn) 2,646 Improving Outlook; Maintain (BoB) has reported elevated fresh slippages of Rs125.7bn (+123% QoQ and +28% YoY) in 4QFY18, led by accelerated NPA recognition of Rs42.7bn from loan under dierent restructuring schemes of the RBI. Further, the Bank has improved its PCR including technical write o to 67.2% and 55.2% on all accounts referred to NCLT by the RBI, which will give muchneeded support to its future credit cost trajectory. Further, sharp rise in slippages led to higher interest reversal for which the Bank witnessed decline in NII and NIM during the quarter. This along with higher provisioning led to loss of Rs31bn in 4QFY18 vs. profit of Rs1.4bn in 4QFY17 and Rs1.1bn in 3QFY18. On the other hand, its domestic loan book grew by 18% YoY and 15.4% QoQ, led by a strong 52.6% YoY growth in Retail loans and continued healthy 27.7% YoY growth in Large & Medium Corporate segment. Management Commentary & Guidance Despite huge fresh slippages during the quarter, the Bank still has ~Rs1.4bn (2.2% of loan book) of standard non-retail stressed accounts, which along with reported gross NPA ratio of 12.3% takes its total stressed assets pool to 14.5% of loan book. Higher provisioning during 4QFY18 and FY18 aided the Bank to maintain its PCR excluding technical written-o accounts at 58.4% vs. 57.7% in Mar 17 and 52.1% in Mar 16. The Bank pegs credit cost at <1bps for FY19E vs. 348bps in FY18 and 189bps in FY17. On corporate slippages front, the Bank does not expect it to cross Rs1bn-mark in FY19E. Treasury performance was absolutely magnificent, as the Bank has one of the lowest modified durations (1.44 years) for its AFS book in volatile interest rate scenario. Thus, the Bank did not require availing the benefit of RBI dispensation with regard to MTM losses. Revamping of Home Loan portfolio has started paying o, which is evident from an impressive 48.2% YoY and 16.7% QoQ growth in loan portfolio in 4QFY18. Notably, the Bank is the first PSB to launch risk-based pricing on home loan with interest rate as low as 8.3%. The Management continues to expect domestic loan book to grow by 15-2% in FY19E. Outlook & Valuation Strong improvement on all major operating metrics clearly suggests that Bank s organisational transformation eort is yielding the desired outcome. Further, analysis of stressed assets clearly suggests that the Bank is approaching the end of recognition of stressed loan cycle, which along with higher PCR clearly indicates sharp moderation in credit cost from FY19E onwards. The Bank s new management is gradually reinstating confidence through major changes in operating structure, which may start yielding favourable outcome. As we believe that improved outlook on asset quality and operating performance front augurs well for the Bank, we maintain our recommendation on the stock with a down wised revised Target Price of Rs192 (from Rs27 earlier) based on x of FY2E Adjusted book value. Key Financials FY17 FY18 FY19E FY2E Loan & Advances 3,832,592 4,274,318 4,84,665 5,469,952 Net Interest Income 135,134 155,218 191,169 219,14 PPP ex Except. Items 19,751 12,56 149,492 172,215 Reported Profits 13,831 (24,318) 41,334 65,747 Earnings Per Share (Rs) 6. (9.2) 15.6 24.8 P/E (x) 24.3 (15.8) 9.3 5.9 Adj. BV (Rs) 119.8 88.5 14.1 127.7 P/ABV (x) 1.2 1.6 1.4 1.1 Gross NPAs Ratio 12.3 9.7 7.5 Adj. RoA.2 (.3).5.8 Adj. RoE 3.4 (5.8) 9.1 13. Share price 1 mth 3 mth 12 mth Absolute performance 1.4 2.7 (16.4) Relative to Nifty 1.4 (27.6) Shareholding Pattern Dec'17 Mar'18 Promoters 58.7 64. Institutions 33. 28. Retail 5.1 4.7 NBFC & Bodies Corporate 3.2 3.3 Total 1. 1. 1 Year Stock Price Performance 2 19 18 17 16 15 14 13 12 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Note: * CMP as on May 28, 218 Research Analyst : Asutosh Kumar Mishra Contact : (22) 3321323 Email : asutosh.mishra@relianceada.com 1
Risks to view Any major slowdown in economy may adversely impact the Bank s business growth and asset quality. Gradually intensifying competition in both Corporate & SME segments may drag loan book growth. Exhibit 1: Income Statement Analysis % yoy / bps % qoq / bps FY18 FY17 % yoy / bps Interest Inc. / Oper. Revenue 11,393 18,752 113,32 (2.3) 436,485 421,999 3.4 Global - Yield on Advances 7.9 7.13 (4) 7.15 (6) 7.13 7.27 (14) Global - Yield on Invt. 6.95 6.93 2 6.67 28 6.77 7.18 (41) Interest Expenses 7,37 72,933 (3.5) 69,92 1.8 281,268 286,865 (2.) Global - Cost of Dep. 4.5 4.7 (24) 4.4 7 4.5 4.8 (28) Net Interest Income 4,23 35,819 11.7 43,94 (8.9) 155,218 135,134 14.9 NII to Net Operative Income 7.2 64.4 581 72.4 (219) 7. 66.7 332 Global - NIM 2.5 2.2 34 2.7 (21) 2.4 2.2 24 Dom. NIM 2.9 2.5 42 3.2 (32) 2.9 2.6 24 Adjusted NII 35,833 3,958 15.7 37,727 (5.) 137,78 114,246 2.6 Core Fee Income 9,85 9,44 4.3 7,71 27.8 32,5 28,35 14.6 Trading Gains 2,87 6,77 (57.6) 5,9 (43.6) 19,94 26,19 (23.9) Profit on Exchange Transaction 1,7 1,84 (7.6) 2,13 (2.2) 7,92 9,76 (18.9) Recovery from PWO 2,539 1,723 47.4 1,8 4 6,212 3,281 89.3 Non Core Other Income 7,19 1,333 (31.2) 9,2 (21.2) 34,72 39,231 (13.2) Other Income - Total 16,959 19,773 (14.2) 16,73 1.4 66,572 67,581 () Other Inc to Net Oper. Income 29.8 35.6 (581) 27.6 219 3. 33.3 (332) Net Operating Revenue 56,982 55,591 2.5 6,671 (6.1) 221,789 22,715 9.4 Net Operating Revenue - Adj. 52,792 5,731 4.1 54,458 (3.1) 24,352 181,827 12.4 Employee Expenses 12,685 12,222 3.8 11,14 14.2 46,69 46,378 (.7) Empl. Cost/Oper. Exps. 22.3 22. 28 18.3 396 2.8 22.9 (211) Other Opex 17,642 13,167 34. 13,65 35. 55,665 46,586 19.5 Other Opex/ Assets.2.2 6.2 6.8.7 1 Total Opex 3,327 25,39 19.4 24,17 25.5 11,734 92,964 9.4 Cost to Income Ratio 53.2 45.7 755 39.8 1,338 45.9 45.9 1 Pre Provision Profits 26,655 3,22 (11.7) 36,51 (27.) 12,56 19,751 9.4 NPA & Bad Debts 7,53 24,25 19.8 31,55 123.5 142,12 76,79 85.1 Depreciation on Invest. (9,11) (83) 997.6 1,73 (626.6) (2,89) 19 (1,621.1) Standard Advances 3,32 2,55 3.2 93 257. 6,88 7,75 (11.2) Other Provisions 1,984 26 663.9 55 3,5.4 1,853 294 53.7 Provisions & Contingencies - Total 66,724 26,23 154.4 34,265 94.7 147,963 85,24 74. Credit Cost 6.58 - - 3. 354 3.48 1.89 159 NPA Provisions as % PPP 25.3 86.8 16,348 93.9 15,645 123.2 77.5 4,578 Profit Before Tax (4,69) 3,972 (1,18.8) 2,236 (1,892.) (27,97) 24,727 (212.9) Tax (9,46) 2,425 (473.) 1,118 (98.9) (3,589) 1,896 (132.9) Eective Tax Rate 22.6 6 (3,847) 5. (2,743.4) 12.9 44.1 (3,12) Reported Profits (31,23) 1,547 (2,15.1) 1,118 (2,875.4) (24,318) 13,831 (275.8) RoA (1.8).1 (187).1 (184.3) (.3) - - Basic EPS (Rs) (13.4).7 (2,2.).5 (2,788.) () 6. (275.5) Diluted EPS (Rs) (13.4).7 (2,2.).5 (2,788.) () 6. (275.5) 2
Exhibit 2: NII Trend Exhibit 3: Other Income Trend 5, 4, 2.3 2.1 2.2 2.2 2.3 2.1 2.2 2.1 2.3 2.7 2.5 3. 2.5 25, 2,.9.9 1.2.9 1.2 3, 2, 1, 1.7 2..5. 15, 1, 5,.5.6.6.9.6.3. Net Interest Income Global - NIM Other Income - Total Other Income / Assets Exhibit 4: Total OPEX Trend Exhibit 5: Pre Provision Profit Trend 35, 3, 25, 2, 15, 1, 5, 5.3 46.7 55.4 49.6 44.6 46.1 47.1 45.7 46.6 44.3 39.8 53.2 6. 5. 4. 3. 2. 1.. 4, 35, 3, 25, 2, 15, 1, 5, 1.2 1.3 1.6 1.6 1.8 1.6 1.8 2.1 2.5 2..5. Total Opex Cost to Income Ratio Pre Provision Profits Operating Profits / Assets Exhibit 6: Provision Expenses Trend Exhibit 7: Reported Profit Trend 8, 6, 4, 2, 27.2 8.9 361.7 266.6 75.1 66.8 8.1 86.8 89.4 76.6 93.9 25.3 4. 3. 2. 1. 2, 1, (1,) (2,) (3,).6.1-1.9-1.9.3.3.2.1.1.2.1-1.8.5. (.5) () () (2.). (4,) (2.5) Provisions & Contingencies - Total NPA Provisions as % PPP Reported Profits RoA 3
Exhibit 8: Balance Sheet Analysis QoQ % / bps YoY % / bps Net Worth 41,586 43,33 43,995 48,274 46,371 433,948 6.8 7.7 CET1 9.3 9. 8.8 8.4 8.3 9.2 95 25 Tier 1 1. 9.9 9.8 9.6 9.5 94 53 Total CAR 12.6 12.2 11.8 11.6 11.6 12.1 53 (11) RWA - Total 3,891,554 3,995,997 4,79,848 4,256,14 4,181,385 4,77,741 (2.5) 2. Advances - Total 3,499,61 3,832,592 3,776,67 3,873,16 3,993,88 4,274,318 7. 1 Investments 1,782,36 1,296,35 1,379,75 1,498,893 1,635,67 1,631,845 (.2) 25.9 Total Assets 6,869,482 6,948,754 6,643,752 6,769,158 6,828,243 7,199,998 5.4 3.6 RoA.2.1.12.21.7 (1.77) (184) (187) Deposits 5,898,589 6,16,752 5,76,75 5,832,12 5,732,652 5,913,148 3.1 (1.7) Saving Deposit 1,558,21 1,59,765 1,476,5 1,532,11 1,559,46 1,657,17 6.3 9.8 Current Deposit 44,15 425,193 46,75 417,24 425,41 46,62 8.3 8.3 CASA Deposits 1,962,36 1,934,958 1,882,8 1,949,35 1,984,87 2,117,79 6.7 9.4 CASA Ratio 4.5 38.8 38.8 39.2 4.6 41.2 61 239 Term Deposits 3,936,229 4,81,794 3,823,275 3,882,77 3,747,782 3,795,358 1.3 (7.) Interest Bearing Liabilities - Total 6,216,789 6,322,866 5,99,458 6,139,94 6,185,57 6,538,868 5.7 3.4 Exhibit 9: Loan Book Analysis QoQ % / bps YoY % / bps Home 265,48 31,69 329,39 353,8 383,18 447,11 16.7 48.2 Auto 42, 43,94 45,11 48, 52,18 57,27 9.8 3.3 Education 2,62 2,54 2,53 2,87 2,93 2,43 (2.4) (.5) Other Retail loans. 185,1 213,77 213,21 221,22 228,18 31,23 32. 4.9 Retail 475,63 541,172 571,975 589,15 64,149 826,4 29. 52.6 Agriculture 375,5 444,38 435,79 42,789 436,466 495,83 13.6 11.7 SME 425,56 541,172 544,738 476,894 465,563 517,3 11.1 (4.4) Large & Medium Corporate 1,2,158 1,221,16 1,143,95 1,29,42 1,338,494 1,647,83 23.1 34.9 Domestic Misc. 25,3 27,752 27,237 28,53 29,98 25,69 (11.7) (7.4) Gross Domestic Loan 2,5,33 2,775,24 2,723,69 2,85,26 2,99,77 3,512,69 2.7 26.6 Overseas 999,27 1,57,35 1,52,38 1,67,76 1,84,3 1,94,75 3.5 Advances - Total 3,499,61 3,832,592 3,776,67 3,873,16 3,993,88 4,274,318 7. 1 Exhibit 1: Funding Mix & Incremental Contribution As on As % of Total YoY/ YTD growth Incremental Contribution YoY/ YTD Growth FY15 FY16 FY17 FY18 Credit FY16 FY17 FY18 FY16 FY17 FY18 Deposits 6,175,595 5,74,379 6,16,752 5,913,148 9.4 (7.) 4.8 (1.7) 96. 11 (48.) Saving Deposit 1,11,722 1,167,54 1,59,765 1,657,17 25.3 5.9 29.4 9.8 (14.4) 138.3 68.2 Current Deposit 527,967 346,291 425,193 46,62 7. (34.4) 22.8 8.3 4.1 31.8 16.4 CASA Deposits 1,629,689 1,513,345 1,934,958 2,117,79 32.4 (7.1) 27.9 9.4 25.7 17.2 84.6 Term Deposits 4,545,97 4,227,34 4,81,794 3,795,358 58. (7.) (3.4) (7.) 7.4 (58.6) (132.6) Borrowings 352,643 334,717 36,114 625,72 9.6 (5.1) (8.5) 14.4 4. (1) 148. Interest Bearing Liabilities - Total 6,528,238 6,75,96 6,322,866 6,538,868 1. (6.9) 4.1 3.4 1. 1. 1. 4
Exhibit 11: Asset Quality Analysis QoQ % / bps YoY % / bps Total Slippages 41,35 4,77 52, 34,51 56,3 125,69 123.3 28.3 Slippages Ratio 8 6 1.36.9 1.47 3.28 181 222 Gross NPA 426,424 427,187 461,728 463,68 484,84 564,84 16.5 32.2 Gross NPAs Ratio 11.4 11.4 11.2 11.3 12.26 96 176 PCR - Calculated 55.4 57.7 57.7 57.7 59.1 58.4 (63) 75 PCR - Inc. Tech w/o 64.5 66.8 65. 67.2 68. 67.2 (82) 38 Net NPA 19,63 18,82 195,193 195,726 198,522 234,827 18.3 29.9 Net NPAs Ratio 5.4 4.7 5.2 5.1 5. 5.49 49 79 Std. Restructured / Watchlist 14,59 17,85 118,19 117,22 9,21 1,39 11.3 (6.9) Std. Restructured / Watchlist as % loan book 3.8 2.7 2.92 2.84 2.1 2.18 8 (47) 5
Profit & Loss Statement Y/E Mar FY17 FY18 FY19E FY2E Int. Income / Opr. Revenue 421,999 436,485 483,8 541,786 Interest Expenses 286,865 281,268 291,911 322,682 Net Interest Income 135,134 155,218 191,169 219,14 NIM 2.8 2.3 2.67 2.76 Other Income - Total 67,581 66,572 73,993 83,62 Net Operating Revenue 22,715 221,789 265,162 32,76 Employee Exp. 46,378 46,69 49,985 52,984 Other Opex 46,586 55,665 65,685 77,58 Total Opex 92,964 11,734 115,669 13,492 C/I Ratio 45.86 45.87 43.62 43.11 Pre Provision Profits 19,751 12,56 149,492 172,215 PPP Growth (yoy %) 24.5 9.4 24.5 15.2 Total Stress Loan Provision 76,79 142,12 85,486 72,61 Standard Assets Provision 7,75 6,88 2,832 3,146 Investment Depreciation 19 (2,89) 3,562 4,7 Other Provisions 294 1,853 2,131 2,387 Provisions & Contingencies - Tot 85,24 147,963 94,11 82,15 Credit Cost (As % of Op. AUM) 2. 3.71 2. Profit Before Tax 24,727 (27,97) 55,482 9,65 Tax 1,896 (3,589) 14,148 24,317 Eective Tax Rate 44.1 12.9 25.5 27. Reported Profits 13,831 (24,318) 41,334 65,747 PAT Growth (yoy %) (125.6) (275.8) (27.) 59.1 Balance Sheet Y/E March FY17 FY18 FY19E FY2E Equity Share Capital 4,621 5,34 5,34 5,34 Res. (ex Revel. Reserve) 362,652 397,81 438,415 5,969 Net Worth - Ex Revaluation 367,273 42,384 443,718 56,272 Revaluation Reserve 35,76 31,563 29,897 29,11 Deposits 6,16,752 5,913,148 6,459,19 7,38,28 Borrowings 36,114 625,72 697,798 767,168 Interest Bearing Liabi. 6,322,866 6,538,868 7,156,97 8,75,448 Other Lia. & Prov. 222,856 227,182 25,399 268,811 Total Liabilities 6,948,754 7,199,998 7,88,921 8,879,641 Assets Cash & Cash Equivalent 1,54,699 928,974 844,247 934,29 Investments 1,296,35 1,631,845 1,78,878 2,3,721 Loan & Advances 3,832,592 4,274,318 4,84,665 5,469,952 Growth (yoy %) (.1) 1 13.3 13. Fixed Assets 57,584 53,674 56,489 61,114 Other Assets 257,574 311,186 358,642 41,645 Total Assets 6,948,754 7,199,998 7,88,921 8,879,641 6
Per Share Data Y/E Mar FY17 FY18 FY19E FY2E Face Value (Rs) 2 2 2 2 Adjusted Share O/S (mn) 2,31 2,652 2,652 2,652 Earnings Per Share (Rs) 6. (9.2) 15.6 24.8 EPS (% YoY) (125.6) (253.2) (27.) 59.1 P/E (x) 24.3-15.8 9.3 5.9 Adj. EPS (Rs) 6. (9.2) 15.6 24.8 Adj. EPS (% YoY) (125.6) (253.2) (27.) 59.1 Adj. Price-Earnings (x) 24.3-15.8 9.3 5.9 Book Value (Rs) 159. 151.7 167.3 19.9 BVPS (% YoY) 1.8 (4.5) 1.3 14.1 P/BV (x).9.9.8 Detail RoA Tree Analysis Y/E Mar FY17 FY18 FY19E FY2E Yields / Margins Yield on Advance 7.2 7.2 7.3 7.3 Yield on Funds 6.5 6.5 6.8 6.8 Cost of Funds (CoF) 4.6 4.4 4.3 4.2 Interest Spread 1.9 2.1 2.5 2.6 NIM's 2.1 2.3 2.7 2.8 Interest Income / Assets 6.2 6.2 6.4 6.5 Interest Exp. / Assets 4.2 4. 3.9 3.9 NII / Assets 2. 2.2 2.5 2.6 Fee Income / Assets.4.5.5.5 Other Non Core Income / Assets.4.3.3.2 Other Income / Assets.9 Net Operating Income / Assets 3. 3.1 3.5 3.6 Operating Ratios NII to Net Operative Income 66.7 7. 72.1 72.4 Other Inc. to Net Operative Income 33.3 3. 27.9 27.6 Empl. Cost/Oper. Exps. 49.9 45.3 43.2 4.6 Other Op. Exps./Oper. Exps. 5.1 54.7 56.8 59.4 C/I Ratio 45.9 45.9 43.6 43.1 Provisions as % PPP 41.9 66.7 35.5 27.1 Credit Cost (As % of Op. AUM) 2. 3.7 2. Eective Tax Rate 44.1 12.9 25.5 27. Employee Exp. / Assets.7.7.7.6 Other Opex/ Assets.7.8.9.9 Total Opex / Assets 1.4 1.4 1.6 Operating Profits / Assets 1.6 1.7 2. 2.1 Provisions / Assets 1.2 2.1 1.2 Profit Before Tax / Assets.4 (.4).7 1.1 Tax Expenses / Assets.2 (.1).2.3 RoA.2 (.3).5.8 Leverage (x) 18.9 17.9 17.8 17.5 RoE 3.4 (5.8) 9.1 13. 7
Balance Sheet Ratio Y/E Mar FY17 FY18 FY19E FY2E Credit / Deposit Ratio 63.7 72.3 74.9 74.8 Incremental C/D Ratio (1.8) (426.4) 13.7 74.1 Investment Deposit Ratio 2 27.6 27.6 27.4 Dom. SLR Investment / Deposits 25.2 28.9 31.2 3.6 CASA Ratio 44. 45.4 46. 46.3 Credit Quality Y/E Mar FY17 FY18 FY19E FY2E Slippage Ratio 3.5 6.3 3.3 2. Gross NPA 427,187 564,84 471,898 412,295 Gross NPAs Ratio 12.3 9.7 7.5 PCR 57.7 58.4 57.4 56.7 Net NPA 18,82 234,827 21,84 178,561 Net NPAs Ratio 4.7 5.5 4.2 3.3 Total Impaired Loans 431,459 576,1 471,898 412,295 Impaired Loan as % of Loan / AUM 1 13.1 9.5 7.3 Total Risk Reserves 246,385 329,977 27,814 233,735 Total Risk As % of Loan Book 6.3 7.5 5.4 4.1 Capital and Asset-Liability Profile Y/E Mar FY17 FY18 FY19E FY2E Total RWAs 3,995,997 4,77,741 4,535,467 5,36,322 RWA as % of Total Assets 57.5 56.6 57.5 56.7 Shareholders Equ. to Assets (x) 5.3 5.6 5.6 5.7 CET 1 Ratio 9. 9.2 9.2 9.4 AT 1 Ratio.9 1.2 1.2 1.2 Tier 1 Ratio 9.9 1.4 1.6 Tier 2 Ratio 2.3 1.7 1.7 1.6 Total CRAR Ratio 12.2 12.1 12. 12.2 8
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