Management Meet Note | Banking

December 15, 2011

Bank of Maharashtra
Management Meet Note
We recently met the management of Bank of Maharashtra. The key take away from the visit were: Asset quality & provisioning: Bank of Maharashtra (BOM) has progressively been able to improve its asset quality over the past one year on back of conservative credit growth, moderate yield loan book and recoveries post CBS implementation. BOMs credit book is relatively more diversified than the other regional banks with exposure to any industry not above 4% except power sector, (13.0% of overall gross advances), of which 71% is towards State electricity boards (SEB) lending. Also, the management initiatives in the form of discontinuing take out financing, stopping loan disbursements in education sector and sugarcane projects (except entrepreneurial ventures), which traditionally have brought upon higher delinquencies for the bank, we believe should keep the banks asset quality relatively healthier to peers. The bank would be restructuring ~`1,200cr of loans to a couple of SEBs in 2HFY2012. While around `440cr is expected to be restructured in 3QFY2012, the rest could be restructured in the subsequent quarters. The management also stated that loans to all other SEBs are performing and they do not expect any kind of stress arising from these exposures. Also the management clarified that there would be no NPV loss on the restructured loans as interest rates will not be lowered down on these loans. The management expect a quarterly run-rate in slippages of ~`125cr and expect relatively higher recoveries over the next 2 quarters, leading to ~`100cr decline in the absolute gross NPA levels. Capital Infusion: The management sounded confident of receiving its full request of `860cr capital from the government. The capital infusion though will be book dilutive, should help in shoring up the banks tier-I ratio above 8% by FY2013. Outlook and valuation: At the CMP, the stock is trading at attractive valuations, in our view, of 0.6x FY2013E ABV vs. its five-year range of 0.71.2x and median of 0.9x. On the back of relatively better NIM, moderate fee income and relatively healthy asset quality, we expect the bank to deliver healthy 25.2% earnings CAGR over FY201113E. We value the stock at 0.8x and hence recommend a Buy rating with a target price of `52 implying an upside of 18.3% from current levels.

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Banking 2,094 0.8 69/43.5 60,457 10 15,836 4,764 BMBK.BO BOMH@IN

`44 `52
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 79.2 8.8 1.1 10.9

Abs. (%) Sensex BOM

3m (6.2) (12.1)

1yr (19.4) (29.3)

3yr 61.1 90.4

Key Financials
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research

FY2010 1,296 3.2 440 17.2 2.1 10.2 4.3 0.9 0.7 19.7

FY2011 1,968 51.9 330 (24.8) 2.8 6.2 7.1 0.8 0.4 11.3

FY2012E 2,501 27.1 532 61.0 3.2 9.7 4.5 0.6 0.6 15.3

FY2013E 2,738 9.5 710 33.5 3.1 9.7 4.5 0.6 0.7 16.6

Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com

Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com

Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com

Please refer to important disclosures at the end of this report

Bank of Maharashtra | Management Meet Note

Exhibit 1: Strong CASA ratio for Bank of Maharashtra (BOM)

50.0 40.0 30.0 20.0 10.0 -

Exhibit 2: Fee income performance by PSU banks 1HFY2012

1.20 1.00 0.80 0.60 0.40 0.20 ANDHBK DENABK CENTBK
1.6x

UnionBk

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 3: Trend in NPA ratios

Gross NPAs Opening Additions Deductions - Write offs - Recoveries - Upgrades Closing Net NPA Gross NPAs (%) Net NPAs (%) 2QFY11 1,459 235 227 134 77 17 1,467 880 3.6 2.2 3QFY11 1,467 116 207 129 59 19 1,377 799 3.2 1.9 4QfY11 1,377 224 427 47 65 315 1,174 619 2.5 1.3 1QFY12 1,174 187 213 83 66 64 1,148 531 2.4 1.2 2QFY12 1,148 93 147 49 67 30 1,094 284 2.2 0.6

Exhibit 4: Valuation inexpensive for BOM

120 100 80 60 40 20 0 Price(`) 0.4x 0.7x 1x 1.3x

Dec-06

Aug-05

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 5: Valuation snapshot

Company Reco. CMP (`) Tgt. Price (`) Upside (%) FY2013E P/ABV (x) FY2013E Tgt. P/ABV (x) FY2013E P/E (x) FY11-13E EPS CAGR (%) FY2013E RoA (%) FY2013E RoE (%)

J&KBk SynBk BOM UtdBk DenaBk J&KBk

Neutral Buy Buy Buy Neutral Neutral

649 92 44 57 61 649

115 52 70 -

25.4 18.3 23.1 -

0.7 0.6 0.6 0.5 0.4 0.7

0.8 0.8 0.6 -

4.1 4.0 4.5 3.4 2.9 4.1

12 11.8 25.2 12.4 7.5 12

Aug-09

1.3 0.7 0.7 0.6 0.8 1.3

Dec-10

Apr-04

Apr-08

UCOBK

SBI

CANBK

ALLBK

UNBK

IDBI

UTDBK

INDBK

CRPBK

BOB

PNB

OBC

BOI

VIJAYA

SBI

SYNBK

CentBk

CanBk

AndhBk

DenaBk

CorpBk

J&KBK

IDBI

J&KBk

BOB

SynBk

UcoBk

UtdBk

IndBk

BOM

BOM

VijBk

AllBk

OBC

PNB

BOI

IOB

IOB

17.8 16.3 16.6 14 16.4 17.8

Source: Company, Angel Research; CMP as of December 15, 2011

December 15, 2011

Bank of Maharashtra | Management Meet Note

Exhibit 6: Credit break-up 2QFY2012

Industry Infrastructure -of which Power -of which SEB NBFCs -of which HFC -of which MFI Iron and steel Chemicals Engineering Other Metals Textiles Vehicles Construction Total Credit (`cr) 8,772 6,584 4,670 7,418 2,734 33 1,900 1,821 1,797 613 493 489 409 % of Advances 17.2 12.9 9.2 14.6 5.4 0.1 3.7 3.6 3.5 1.2 1.0 1.0 0.8 Industry Food Processing Paper Petroleum Cement Gems and Jewellery Mining Vegetables Tobacco Sugar Computer infra Leather Rubber Tea Total Credit (`cr) 390 342 316 312 194 119 68 56 30 30 25 24 3 % of Advances 0.8 0.7 0.6 0.6 0.4 0.2 0.1 0.1 0.1 0.1 0.0 0.0 0.0 Industry MSME NBFC Retail -of which Housing -of which Education -of which Vehicles -of which Personal -of which Consumer -Others (Retail) Agriculture Whole sale traders CRE Others Total Credit (`cr) 8,193 7,418 5,773 4,538 512 400 255 20 48 5,312 2,217 709 21,285 % of Advances 16.1 14.6 11.3 8.9 1.0 0.8 0.5 0.0 0.1 10.4 4.4 1.4 41.8

Source: Company, Angel Research

December 15, 2011

Bank of Maharashtra | Management Meet Note

Profit & loss statement

Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Provision and Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Provision for Taxation - as a % of PBT PAT - YoY Growth (%) FY2010 FY2011 FY2012E FY2013E

Balance sheet
Y/E March (` cr) Share Capital Reserve & Surplus Deposits - Growth (%) Borrowings Tier-2 Capital Other Liabilities & Provisions Total Liabilities Cash in Hand and with RBI Bal. with banks, money at call Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets FY2010 FY2011 FY2012E FY2013E

1,296 3.2 591 18.2 1,887 7.5 1,073 11.4 815 2.6 246 (13.0) 569 11.3 129 22.7 440 17.2 440 17.2

1,968 51.9 531 (10.2) 2,499 32.4 1,644 53.2 855 5.0 467 90.1 388 (31.8) 57 14.8 330 (24.8) 34 297 (32.5)

2,501 27.1 592 11.5 3,093 23.7 1,437 (12.6) 1,656 93.6 868 85.9 787 103.0 255 32.4 532 61.0 65 467 57.4

2,738 9.5 651 10.0 3,389 9.6 1,610 12.0 1,779 7.5 728 (16.1) 1,051 33.5 341 32.4 710 33.5 62 648 38.9

866 2,428 63,304 21.1 129 2,668 2,096 71,056 5,315 1,379 21,324 40,315 17.6 660 2,063 71,056

1,144 2,901 66,845 5.6 577 2,500 2,550 76,442 3,846 203 22,491 46,881 16.3 667 2,354 76,442

1,144 3,256 74,866 12.0 645 2,925 2,756 85,517 4,866 428 22,016 54,850 17.0 724 2,634 85,517

1,144 4,413 86,845 16.0 753 3,422 3,191 99,885 5,645 499 25,669 64,175 17.0 820 3,076 99,885

Preference Dividend
PAT available to Eq. SH

- YoY Growth (%)

Key ratios
Y/E March Profitability ratios (%) NIMs* Cost to Income ratio ROA ROE B/S ratios (%) CASA ratio Credit/Deposit ratio CAR - Tier-I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan loss prov. /avg. assets Provision coverage Per Share Data (`) EPS ABVPS (75% cover for NPAs) DPS Note*: All NIM figures are calculated FY2010 FY2011 FY2012E FY2013E

Key ratios
Y/E March Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII FY2010 FY2011 FY2012E FY2013E

2.1 56.8 0.7 19.7 36.9 63.7 12.8 5.7 3.0 1.6 2.5 0.4 54.7 10.2 48.6 2.0

2.8 65.8 0.4 11.3 40.4 70.1 13.4 8.0 2.5 1.3 1.7 0.5 65.6 6.2 57.3 2.0

3.2 46.5 0.6 15.3 40.1 73.3 13.7 7.9 2.6 0.7 1.5 0.9 85.0 9.7 68.4 2.0

3.1 47.5 0.7 16.6 38.4 73.9 15.1 9.2 3.5 0.7 2.0 0.7 85.0 9.7 69.1 2.0

4.3 0.9 4.6 2.0 0.4 1.6 0.3 1.9 0.6 2.5 1.6 0.9 0.2 0.7 0.7 29.1 19.7

7.1 0.8 4.6 2.7 0.6 2.0 0.1 2.1 0.6 2.8 2.2 0.5 0.1 0.4 0.0 0.4 27.6 11.3

4.5 0.6 4.6 3.1 1.1 2.0 0.0 2.0 0.7 2.7 1.8 1.0 0.3 0.7 0.1 0.6 26.0 15.3

4.5 0.6 4.6 3.0 0.8 2.2 0.0 2.2 0.7 2.9 1.7 1.1 0.4 0.8 0.1 0.7 23.4 16.6

(-) Prov. Exp. Adj NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes ROA Preference Dividend ROA after Pref Div

Leverage
ROE

December 15, 2011

Bank of Maharashtra | Management Meet Note

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Bank of Maharashtra No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 15, 2011