Visit http://indiaer.blogspot.com/ for complete details �� ��
STATE BANK OF INDIA (SBI)
PRICE: RS.3098
RECOMMENDATION: BUY
TARGET PRICE: RS.3675
FY12E P/E: 16.0X; P/ABV: 3.0X
Correction overdone; upgrade to BUY
SBI has corrected sharply since its Q2FY11 results due to spike in slippage
and rise in concern over microfinance & 2G/3G lending by the banks
(especially PSU banks). We believe, the correction in stock price is overdone
and hence we upgrade the stock to BUY from ACCUMULATE earlier with
~19% upside from the current level.
SBI, being the largest bank of India is proxy to India growth story, in our
view. We believe, it is likely to report healthy core operating performance
on back of strong CASA mix, waning excess balance sheet liquidity and
upturn in margin cycle.
Upturn in NIM cycle is key positive for the stock. After bottoming out in
Q1FY10, it has witnessed consistent improvement. It improved to 3.43% in
Q2FY11 as against 3.18% in Q1FY11, 2.96% in Q4FY10, 2.82% in Q3FY10,
2.55% in Q2FY10 and 2.30% in Q1FY10. We are factoring in ~3.1% NIM
during FY11-12E.
Although higher slippage (average run-rate of Rs.46.7 bn) in last two
quarters is a cause of concern, lower likely slippage from restructured book
along with improvement in the macro-economic environment will help to
sustain its healthy asset quality in the future. Extension from RBI to reach
70% PCR (provision coverage ratio) by September 11 is likely to be positive
for the stock as it would smoothen its earnings on back of well spread
incremental provisions over next couple of quarters.
We are maintaining our earning estimates for FY11E and FY12E. However,
we upgrade the stock to BUY from ACCUMULATE earlier with unchanged TP
of Rs.3675, on back of recent price correction. Our fair value estimate is
based on SOTP methodology where core business is valued at Rs.2515 (2.2x
FY12E ABV) and subsidiaries are valued at Rs.1160 (after giving 20% holding
company discount).
SBI has corrected sharply since its Q2FY11 results
SBI has corrected sharply since its Q2FY11 results due to spike in slippage (slippage
ratio: 3.3% in Q2FY11, 2.5% in Q1FY11) and rise in concern over microfinance &
2G/3G lending by the banks (especially PSU banks). We believe, the correction in
stock price is overdone and hence we upgrade the stock to BUY from ACCUMULATE
earlier with ~19% upside from the current level.
consecutive quarters
NIM of the bank bottomed out in Q1FY10 and since then it has been witnessing
consistent improvement. It improved to 3.43% in Q2FY11 as against 3.18% in
Q1FY11, 2.96% in Q4FY10, 2.82% in Q3FY10, 2.55% in Q2FY10 and 2.30% in
Q1FY10. We are factoring in ~3.1% NIM during FY11-12E.
This has come on the back of improvement in CASA mix from 40.96% at the end of
Q2FY10 to 47.79% at the end of Q2FY11 on back of strong traction in saving deposits
(31.6% growth YoY) and healthy growth in current account float (13.6% growth
YoY) along with conscious strategy of running down term deposits (flat growth of
0.1% YoY).
Higher slippage is negative; however asset quality is comfortable
QoQ
Although higher slippage (average run-rate of Rs.46.7 bn in last two quarters as
against Rs.25-26 bn during Q3FY10 & Q4FY10) in last two quarters is a cause of
concern, lower likely slippage from restructured book along with improvement in the
macro-economic environment will help to sustain its healthy asset quality in the future.
Higher slippage of Rs.52.66 bn (slippage ratio of 3.3% annualized) during Q2FY11
included Rs.8.54 bn of slippage coming on account of State Bank of Indore merger.
In absolute terms, gross NPA and net NPA rose marginally at 11.4% and 4.8%, respectively.
In percentage terms, gross NPA slightly deteriorated to 3.35% at the end
of Q2FY11 from 3.14% at the end of Q1FY11 and 2.99% at the end of Q2FY10. At
the same time, net NPA improved from 1.73% at the end of Q2FY10 to 1.70% at
the end of Q2FY11 (Q1FY11: 1.70%).
It provided Rs.21.62 bn on non-performing assets which included Rs.4.49 bn excess
of RBI's provisioning norms to move towards 70% coverage ratio. Extension from RBI
to reach 70% PCR (provision coverage ratio) by September 11 is likely to be positive
for the stock as it would smoothen its earnings on back of well spread incremental
provisions over next couple of quarters.
At the end of Q2FY11, its PCR (provision coverage ratio) including AUCA stands at
62.78%. To reach 70% PCR, it needs to provide Rs.16.74 bn of extra-provisions
which implies Rs.4.19 bn of extra provisions to be done in each of next four quarters.
Moderate business growth expected during FY11
Bank has witnessed strong loan growth vis-à-vis deposit growth leading to improvement
in the domestic C/D ratio from 67.5% at the end of Q2FY10 to 74.7% at the
end of Q2FY11. However, we believe, bank has to mobilize high cost deposits, going
forward to support loan growth. This could lead to some moderation in the sharp
rise witnessed in net interest income.
Total business of the bank increased moderately at 14.4% to Rs.15485.7 bn at the
end of Q2FY11 from Rs.13531.4 bn at the end of Q2FY10.
n Deposits rose at a modest pace (10.7% YoY) to Rs.8553.5 bn at the end of
Q2FY11 from Rs.7729.0 bn at the end of Q2FY10. Its reported CASA mix improved
from 40.96% at the end of Q2FY10 to 47.79% at the end of Q2FY11 on
back of strong traction in saving deposits (31.6% growth YoY) and healthy
growth in current account float (13.6% growth YoY) along with conscious strategy
of running down term deposits (flat growth of 0.1% YoY).
n Gross advances grew 19.5% (YoY) to Rs.6932.2 bn at the end of Q2FY11 from
Rs.5802.4 bn at the end of Q2FY10 on back of strong growth in retail book
(38.4%), SME book (21.7%), agriculture (17.8%), corporate book (16.0%) and
International banking (11.3%).
Valuation & Recommendation
We are maintaining our earning estimates for FY11E and FY12E and expect net
profit for FY11E and FY12E to be Rs.102.04 bn and 130.96 bn, respectively. This
would result into an EPS of Rs.160.7 and Rs.206.3 for FY11E and FY12E, respectively.
Adjusted book value for FY11E and FY12E is estimated to be Rs.987.6 and
Rs.1143.2, respectively.
At current market price of Rs.3098, stock is trading at 1.7x its FY12E adjusted book
value and 9.4x its FY12E earnings, after stripping the value of its subsidiaries.
We upgrade the stock to BUY from ACCUMULATE earlier with unchanged TP of
Rs.3675, on back of recent price correction.
Our fair value estimate is based on SOTP methodology where core business is valued
at Rs.2515 (2.2x FY12E ABV) and subsidiaries are valued at Rs.1160 (after giving
20% holding company discount).
No comments:
Post a Comment