HDFC Securities has maintained 'Neutral' on Bank of India (BOI) with target price of Rs 322 as against current market price (CMP) of Rs 302 in its report.

Commenting on the investment rationale, HDFC Securities said, ''With weak capital position, BOI mgmt hinted at controlled aggression in loan growth of 16-18% vs. 28% in FY14. Benefit of FCNR deposits, change in loan mix and better asset quality is expected to drive NIMs to 2.4%+ vs. 2.3%. Slippages to decline to Rs 70 billion vs. Rs 88bn and LLP budgeted at 100bps vs. 120bps in FY14. Additional staff cost of Rs 1bn/qtr over next 8-qtrs owing to revised LIC mortality table. Board approval to dilute GOI stake upto 58% (140 million shares).

Controlled growth aggression with weak capital position is a positive surprise. However, we maintain our cautious stance given volatile performances (earnings/asset quality) and lower staff provisions vs. peers.

Further, despite relaxation in Basel III implementation and recent run up in valuations, capital requirement still remains high, leading to frequent dilutions.  Relatively lower return ratios, over the next couple of years seem to offset the attractive valuations of 0.8x on FY16E ABV. Maintain Neutral. Revise TP to Rs 322/sh (0.9x FY16E ABV).''

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