Bank of India

Central Bank of India is entering the capital market on 24^th July 07 with a public issue of 8 crore equity shares of Rs.10 each in the price band of Rs.85 to Rs.102 per share.

The bank is the third largest bank in terms of branches with 3,194 branches, 267 extension counters, 261 ATMs, 34 satellite offices, 17 zonal offices, and 78 regional offices, spread over 27 states, and three union territories. As at 31-03-07, the total deposits of the bank was at Rs.82,776 crores and advances of Rs.51,795 crores with net NPA at Rs.878 crores being 1.70% and gross NPA at Rs.2,572 crores being 4.81%.

For FY 07 the total income of the bank was placed at Rs.6,710 crores, PBT of Rs.695 crores and PAT of Rs.498 crores, resulting in an EPS of Rs.15.36 on equity of Rs.324.14 crores. Post issue, equity of the bank would rise to Rs.404.14 crores, with Government's stake at 80.20%.The book value per share as at 31-03-07 was Rs.77.25 and capital adequacy ratio of 10.40%.

Though the bank claims to be third largest in terms of branches, in terms of its financial performance, the bank is way behind to. Bank of Baroda, Canara Bank, Bank of India, PNB and Union Bank in terms of topline and bottomline and even losing, due to lower profitability, to Allahabad Bank, Andhra Bank, Corporation Bank, Indian Bank, Oriental Bank of Commerce and Syndicate Bank.

The performance of the bank can broadly be compared with Syndicate Bank, which is ruling at Rs.90 levels. Syndicate Bank has branch network of 2,215 branches including one in London. Bank value per share as at 31-03-07 was at Rs.69.41 while EPS was at Rs.13.72. Gross NPA were at 2.95% while net NPA were at 0.76% with capital adequacy of 11.74%. The total income of the bank was at Rs.6,659 crores with net profit of Rs.716 crores. The share rules at a PE multiple of close to 6.60 times.

When we compare the proposed issue with Syndicate Bank, definitely the same appears to be expensive or not so attractive. However, fresh infusion of about Rs.700 crores to Rs.800 crores would improve the financial performance of the bank in FY 08. Issue at a PE multiple of 6.6 and at a price to book value ratio of 1.32 is not bad. Low floating stock of less than 20%, would also help in discovery of better secondary market price. The shares of PSU banks normally rules in a PE multiples of 6 to10 and hence risk on the downside is also minimal. Considering all these, investment in the stock can be considered even at the upper band.