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State Bank of India
Headline Miss, But Core on
Track
F2Q11 earnings at Rs25 bn. This compares with our
estimate of Rs28.6 bn. Given the strength in the stock
over last 3-4 months, this miss may lead to some
weakness in the stock. However, we would buy the dips.
We maintain our price target at Rs3,700. The key points
in the results were:
First the negatives. Slippages and loan loss provision
moved up (coverage ratio now ~63%). However, this is
not a big concern for us. We have maintained that about
20% of restructured book would turn bad, and we have
built in very high credit cost into F2012. The bigger
negative was costs, which were up 19% QoQ on a core
basis. Pension was up materially. Costs tend to be very
volatile on a quarterly basis, but in our estimates we
have now taken costs up.
that State Bank of Indore had to take before merging
with SBI to streamline its pay scale with SBI and to bring
its coverage in line. This caused consolidated earnings
to be lower than parent earnings for the quarter.
However, this was a one-time charge.
Revenue and deposit progression were the key
positives. The bank reported 29 bps QoQ improvement
in core NIMs (added that October was better than F2Q)
and 40% YoY growth in fees income (well ahead of other
banks). Moreover, savings deposits were up close to
32% YoY (on an incremental fiscal YTD basis, SBI
market share is close to 33% versus portfolio share of
24%). Revenue progression and deposit franchise is
what is needed to be a long-term winner, in our view,
and the bank is delivering on that.
We remain buyers. At 11.1x F2012 earnings
(ex-insurance), SBI is still attractive given the revenue
progression. Moreover, we see flexibility to reduce credit
costs. We build in high credit costs for F2012 and F2013,
which may not happen if the economy remains strong.
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