Date:14/04/2004 URL: http://www.thehindubusinessline.com/2004/04/14/stories/2004041402181300.htm

Back Fund interest lifts IOB

Deeptha Rajkumar

ATTRACTIVE valuations have seen the stock of Indian Overseas Bank (IOB) gain strength on the bourses in the recent past.

The counter, which was ruling at around Rs 45 levels as on March 15 has appreciated by almost 51 per cent to its current close of Rs 68. In the last one week, the stock has appreciated by 20.3 per cent.

Brokers maintain fund interest in the counter has seen a sharp acceleration with many leading funds shoring up their portfolios.

According to the market grapevine, Reliance Mutual Fund currently holds a one per cent stake, with emerging market fund, GMO, reportedly holding a two per cent stake. The latest to have joined the bandwagon is said to be an FII, Templeton, which has been very aggressively mopping up shares at the counter.

According to senior analyst Mr Arun Khurana of Prabhudas Liladher, its strong quality of earnings has placed the bank's stock in the market's radar.

"Going forward, we expect a steep improvement in NPA coverage ratio. One could see the bank's NPAs fall from three per cent to one per cent in FY05. And if interest rates on G-Secs continue to move southwards and treasury profits are sustained as is being talked about, then these profits could be used to bring down the NPAs to zero levels,'' Mr Khurana said. Concern over the reportedly high NPAs had been dogging market perception of the stock.

Reiterating this is Mr Punit Srivastava of Enam Securities, who says that the bank's NPAs are likely to fall substantially over the next two years.

"Rapidly improving fundamentals coupled with a focussed and aggressive management is likely to sustain interest in the stock,'' he added.

Mr Khurana maintains that one could see the bank net a profit of around Rs 600 crore for FY04. "From an EPS of Rs 11, one could see an EPS of around Rs 14 next year. Additionally, we foresee a 60 basis point jump in NIMs (net interest margins) for FY04 as a proportion of its total balance sheet because of efficient liability management and deposit rebalancing. This is as against a 10-25 basis point increase in NIMs of banks such as Oriental Bank, PNB and SBI," he added.

The bank's steady improvement in its share of current account and savings account could see a jump from 37 per cent to 41 per cent of its total deposits.

"We expect the stock to touch around Rs 100 levels by end of FY05,'' Mr Khurana said.

The stock ended on Tuesday at Rs 68, up 15 per cent with around 72.78 lakh shares traded on the NSE. On the BSE, the stock closed at Rs 68, up 15 per cent but with around 33.34 lakh shares traded.