Up 80% in just 1 month! Did you miss the rally in this PSU bank stock?

Shares of public sector lender Bank of India surged 5% to hit a 17-month high of ₹83.25 in intraday trade on the Bombay Stock Exchange (BSE) on Thursday, in line with the broader market. The PSU bank has witnessed strong buying momentum in the recent past, with the stock price jumping 80% in just over a month, from ₹46.6 on October 14, 2022. In comparison, the BSE benchmark Sensex and the bankex index have gained around 4% each in a month, while the Nifty PSU Bank index has risen more than 18% during the same period.  

On Thursday, Bank of India share price opened marginally higher at ₹79.60, against the previous closing price of ₹79.30 on the BSE. During the session, the stock gained 5% to hit a fresh record high of ₹83.25, while market capitalisation increased to around ₹33,500 crore.

The stock price got a boost after domestic rating agency Acuité Ratings & Research reaffirmed its long term rating of ‘AA’ for the bank’s additional tier-1 bonds. The firm has also revised the outlook to positive from stable, citing improvement in profitability metrics, capital position and credit growth.

“Acuité has assigned the long-term rating of ‘ACUITE AA’ (read as ACUITE double A) on the ₹1,500 crore Basel III Additional Tier-I Bonds of Bank of India. The outlook is 'Positive',” it says in a report.

“For AT1 bond ratings, Acuité has considered higher risk features including the discretion of coupon payments in a weak capital scenario and principal loss absorption in part or full at the ‘point of non-viability (PONV)’ of a bank,” it added.

The Mumbai-based bank’s net interest margin (NIM) improved to 3.04% in the first half of the current financial year (H1FY23), from 2.42% in H1FY22, while the bank turned profitable during FY21 after 5 years of losses, reporting profits profit after tax (PAT) of ₹3,450 crore in FY22 as compared to ₹2,160 crore in FY21.

For H1FY23, the PAT stood at ₹1,521 crore, supported by healthy operational performance and lower provisions. The bank’s Capital to Risk (Weighted) Assets Ratio (CRAR) improved from 14.93% in FY2021 to 16.51% in FY2022.

As per the report, the rating factors in credit growth predominantly in Risk Assessment Model (RAM) segment in FY2022 (8.73% growth YOY), the bank has been reporting improvement in operational performance. “The rating further factors in BoI’s strong parentage and demonstrated capital support from the Government of India. This is well reflected in the bank’s healthy capitalization levels of 15.51% as on Sept. 30, 22 [Tier I CAR: 13.38%],” it said.

The agency also takes into account an improvement in the bank’s financial performance primarily led by a decline in slippages and overall credit costs. The ratings continue to factor in BoI’s healthy liability profile characterised by CASA mix of 44.12% as on Sept. 30, 22. Additionally, the bank’s high provision cover of 88.96% as on September 30, 2022 provides an adequate buffer against near to medium term asset quality risks, it added.

On liquidity position, the agency said that the BOI's liquidity is supported by the government’s ownership and stable liability franchise. Its liquidity coverage ratio stood at 212.83% as on March 31, 2022, as against the minimum regulatory requirement of 100%.   

Going forward, the agency believes that the bank’s ability to maintain an upward trajectory in the overall financial performance will be key monitorable factors.