Stock Pick From Banking Sector

Low Priced Scrip is hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.

The company recommended as the Low Priced Scrip for this issue is Bank Of Maharashtra.

Bank Of Maharashtra - A Premium Asset

Here is Why:

• It is a consistently dividend paying company available at a fair valuation.
• Improvement is seen on the asset quality and margin front on a sequential basis, coupl d with a robust business growth.
• The government is likely to infuse around INR 800 crore in the bank, which will improve its Capital Adequacy Ratio (CAR).

Many a time, stocks of the fundamentally strongest companies fail to deliver on the returns front. This is typically because of a lack of triggers that can help in building the required momentum. The same logic applies in the reverse too. No matter how weak

SHAREHOLDING PATTERN AS ON 31/12/2012
Promoters	78.95
Banks Fin. Inst. and Insurance	10.84
FIIs	0.77
Private Corporate Bodies	1.24
General Public	7.8
Others	0.4
Total	100

a company is, some very strong triggers can take its stock to unexpected heights. Here is one stock from a sector that currently possesses both fundamental strength as well as a whole lot of triggers that can propel it up on the bourses.

With the Reserve Bank of India (RBI) expected to slash the interest rates in the March quarter of 2013, the banking space has been abuzz with activity. In CY2012, the BSE Bankex ended up 57 per cent, outperforming the Sensex, which appreciated by 26 per cent. We have been consistently bullish on the banking sector in particular, and the dynamics that our optimism is based on haven’t changed. 

So, what are the factors that are prompting us to recommend the Bank of Maharashtra stock? The first is the sound quality of its assets. With the bank reporting robust growth in business, its Net Interest Margin too has been very strong and this adds to its fundamental strength. At the macro level too, there is a lot that goes in favour of this stock. The government has recently announced its intent of infusing capital to the tune of around INR 12500 crore in PSU banks. Of this BOM would be a beneficiary of around INR 800 crore. 

Most public sector banks have been facing serious headwinds when it comes to asset quality. However, BOM stands apart in that it has seen an improvement in its Gross and Net NPAs. For the September 2012 quarter, its Gross and Net NPAs decreased by 24 and 9 basis points to 2 and 0.88 per cent respectively on a sequential quarter basis. This is indeed commendable. BOM’s Provision Coverage Ratio (PCR) stands at a strong 80.13 per cent, which signifies that it may not witness a major setback in terms of asset quality going ahead. 
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The bank’s Net Interest Margin (NIM) decreased by 25 basis points to 2.99 per cent on a YoY basis. However, it improved by 8 basis points on a sequential basis. With a softening of interest rates in the offing, the NIM of the bank is slated to improve too. As on September 30, 2012, its Capital Adequacy Ratio (CAR) stood at 10.75 per cent. The Tier I CAR at 7.09 per cent would seem to be on the lower side. But this issue stands addressed as the bank raised around INR 1000 crore as Tier II bonds in December 2012 and the government will soon be infusing around INR 800 crore as capital into it, helping the CAR to improve in the March 2013 quarter. For the September quarter of 2012, its Net Interest Income (NII) increased by 13.5 per cent to INR 719 crore while the Net Profit grew by a whopping 65 per cent to INR 166 crore on a YoY basis. BOM has also seen robust business growth, which is expected to continue. As of September 2012, its deposits grew by 25 per cent to INR 86541 crore (Current Account and Saving

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Name of Company	Reco.	CMP	Gain
Omkar Specialty Chemicals	58.50	144.00	146.15%
PTC India	45.00	78.00	73.33%
GIC Housing Finance	84.00	138.00	64.29%
Granules India	102.30	154.00	50.54%
Dena Bank	80.50	117.00	45.34%
Syndicate Bank	97.30	140.00	43.88%
Heidelberg Cement	36.30	52.00	43.25%
IDBI Bank	81.00	110.00	35.80%

Account (CASA) ratio at 37.44 per cent), while the advances grew by 27 per cent to INR 64778 crore. Further, as on September 30, 2012, its exposure to riskier sectors like power, textile, telecom and aviation was at around 16 per cent of the total advances, which is fairly decent. 

The bank has been consistently rewarding its shareholders with dividends. For FY12, it paid a dividend of INR 2.2 per share, which at the current market price, results in a yield of 3.6 per cent. The stock is currently available at a TTM PE multiple of 7.22x, while the Price-to-Book Value stands at 1x, which is not bad at all. Buy into this counter and hold it in your portfolio.

LAST FIVE QUARTERS (Rs/Cr)
Particulars	Dec-12	Sep-12	Jun-12	Mar-12	Dec-11
Interest Earned	2536.58	2256.89	2038.5	1898.34	1871.07
Other Income	173.58	177.2	178.8	172.87	149.71
Interest Expended	1744.29	1537.95	1387.41	1251.04	1225.74
Employee Cost	287.82	277.3	259.49	422.59	233.42
Tax	187.06	84.34	-15.9	32.93	79.84
Net Profit/(Loss)	194.06	166.01	140.46	72.83	135.54
Equity Share Capital	589.59	589.59	589.59	589.59	481.71