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UBS Investment Research
State Bank of India
Strong top line: LLP stays high
Profit below UBSe expectations
SBI reported lower than expected profit of Rs25 bn in Q2 due to higher loan loss
provisioning and high staff costs despite better Net interest income and fee income.
Key highlights: 1) a subsidiary bank (State Bank of Indore) merged during the
quarter, 2) NII growth of 45% YoY enabled by 20 bps margin expansion, 3) Fee
growth of 40% YoY, 3) Loan growth remain subdued at 1% QoQ (adj. for merger),
4) Cost to income ratio went up to 47.5%, 5) LLP stayed high at 1.3% of loans.
Margins expanded to 3.4% and fee grew 40% YoY
Due to high (48%) CASA ratio and increased lending rates, the bank registered 20
bps NIM expansion QoQ. Loan book (excluding merger impact) grew merely 1%
QoQ partly due slower demand and partly due to increased commercial paper
issuances. Fee growth was strong at 40% YoY, driven by increased government
business, LC/BG, and loan related fees. We expect loans to grow at 18% CAGR
over FY11-12.
Gross NPL additions at 2.7% remained high in Q2. Higher relapse of Rs 6.6bn
from restructured loans, Rs 2.6bn exposure to Dubai World and agriculture NPL
contributed to NPL additions. We believe relapse from restructured to continue in
Q3, while pressure from other segments are expected to recede.
Valuation: maintain PT and Buy rating
Our FY11/12/13 earnings estimates are largely unchanged. We maintain Buy with
PT of Rs3850 based on our sum of the parts.
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