Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
Neutral
SBI.BO, SBIN IN
Cheap, but high NPLs persist
• 3Q11: Headline beat estimates but asset quality concern remains:
SBI reported net profit of Rs28bn up 14% y/y v/s our expectation of
Rs26bn. Stronger than expected margin and lower provisions was the
primary reason for the profit beat. But ~500bps of coverage shortfall and
provisioning for teaser loans could put future profits at risk.
• High slippages continue: Slippages continued at >2.0% and was higher
than peers. Reported Gross NPAs was flat due an accounting
adjustment. Though increase in restructured book was primarily on
account of known airline exposure, we remain concerned on high NPA
accretion in spite of a strong economic recovery. Credit costs did fall in
this qtr but coverage shortfall remains high at 500bps.
• Margins and loan growth positive: Margins surprised positively with
~20bps improvement in NIMs to 3.6% with cost of deposits down 5bps
to 5.2% in 3Q11. CASA remained steady at ~48% with y/y contraction
in bulk deposits. Management expects to maintain margins in 4Q11 but
rising costs would impact margins in 1HFY12. Loan growth was strong
at 7% q/q growth with large corporates/retail credit driving loan growth.
• Risks to earnings: Our FY11 estimates imply Rs27bn of PAT for 4Q11
lower than 3Q11 profits. But we see risks from NPA shortfall and
possible provisioning required on teaser loans though management
believes that they will not have to provide for teaser loans. Also higher
duration AFS book could lead to relatively higher MTM losses.
• Maintain Neutral: With the 25% correction over the last 3 months, we
believe current valuations at 1.4x FY12 book are no longer demanding.
But we remain concerned on the high slippage trend and risks to
profitability from higher provisioning requirements and thus maintain
our Neutral recommendation.
Asset Quality disappoints again
Slippages continued at >2.0% -- higher than peers, though reported Gross NPAs did
not move up given an accounting adjustment which reduced Gross NPAs by Rs8.0bn
in this qtr. Though the large increase in restructured book was primarily on account
of known airline exposure we remain concerned on high NPA accretion in spite of a
strong economic recovery. Credit costs did fall in this qtr sequentially but still
remains high at 90bps. Also NPA provisioning shortfall remains at ~500bps with
Mar-11 as the timeline to meet 70% coverage.
Margin surprises
SBI's margins surprised with ~20bps q/q improvement to ~3.6% in 3Q11 from 3.4%
in 2Q11. CASA ratio remained stable in this qtr at 48%. Stable CASA and low
reliance on bulk deposits have aided margins in this qtr. Management expects to
maintain margins in the next qtr and believes that maturity of the high cost 1000day
deposits in Jun-Dec-11 would help protect from margin pressure expected from
rising cost of funds.
Loan growth strong
Loan growth remained strong at 22% growth with large corporates and retail credit
driving overall loan growth. Overall deposit growth was tepid at 3% q/q deposit
growth reflecting the system trend but SBI's reliance on bulk deposits have been low
with overall bulk deposit book contracting q/q. Large corporate book growth was
high at 28% y/y with mid corporate and SME loan growth at 18% and 21%. ~50%
y/y growth in car loans aided strong growth in retail loan book.
Other 3Q11 highlights
Slow growth in fee income: Core fee income growth has been weak in 3Q11 with
q/q fall in fees and marginal increase from 3Q10 levels.
Operating costs in control: Opex growth for 9M11 has been under control with just
a 14% y/y increase in overall expenses. Pension provisions have led to elevated
operating cost growth for peers in FY11 but with no 2nd pension liability operating
costs has remained under control for SBI.
Tax rate high in 3Q11: Effective tax rate was high at ~40% in 3Q11 as higher
provisions required to increase provision coverage is not tax deductible.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
Neutral
SBI.BO, SBIN IN
Cheap, but high NPLs persist
• 3Q11: Headline beat estimates but asset quality concern remains:
SBI reported net profit of Rs28bn up 14% y/y v/s our expectation of
Rs26bn. Stronger than expected margin and lower provisions was the
primary reason for the profit beat. But ~500bps of coverage shortfall and
provisioning for teaser loans could put future profits at risk.
• High slippages continue: Slippages continued at >2.0% and was higher
than peers. Reported Gross NPAs was flat due an accounting
adjustment. Though increase in restructured book was primarily on
account of known airline exposure, we remain concerned on high NPA
accretion in spite of a strong economic recovery. Credit costs did fall in
this qtr but coverage shortfall remains high at 500bps.
• Margins and loan growth positive: Margins surprised positively with
~20bps improvement in NIMs to 3.6% with cost of deposits down 5bps
to 5.2% in 3Q11. CASA remained steady at ~48% with y/y contraction
in bulk deposits. Management expects to maintain margins in 4Q11 but
rising costs would impact margins in 1HFY12. Loan growth was strong
at 7% q/q growth with large corporates/retail credit driving loan growth.
• Risks to earnings: Our FY11 estimates imply Rs27bn of PAT for 4Q11
lower than 3Q11 profits. But we see risks from NPA shortfall and
possible provisioning required on teaser loans though management
believes that they will not have to provide for teaser loans. Also higher
duration AFS book could lead to relatively higher MTM losses.
• Maintain Neutral: With the 25% correction over the last 3 months, we
believe current valuations at 1.4x FY12 book are no longer demanding.
But we remain concerned on the high slippage trend and risks to
profitability from higher provisioning requirements and thus maintain
our Neutral recommendation.
Asset Quality disappoints again
Slippages continued at >2.0% -- higher than peers, though reported Gross NPAs did
not move up given an accounting adjustment which reduced Gross NPAs by Rs8.0bn
in this qtr. Though the large increase in restructured book was primarily on account
of known airline exposure we remain concerned on high NPA accretion in spite of a
strong economic recovery. Credit costs did fall in this qtr sequentially but still
remains high at 90bps. Also NPA provisioning shortfall remains at ~500bps with
Mar-11 as the timeline to meet 70% coverage.
Margin surprises
SBI's margins surprised with ~20bps q/q improvement to ~3.6% in 3Q11 from 3.4%
in 2Q11. CASA ratio remained stable in this qtr at 48%. Stable CASA and low
reliance on bulk deposits have aided margins in this qtr. Management expects to
maintain margins in the next qtr and believes that maturity of the high cost 1000day
deposits in Jun-Dec-11 would help protect from margin pressure expected from
rising cost of funds.
Loan growth strong
Loan growth remained strong at 22% growth with large corporates and retail credit
driving overall loan growth. Overall deposit growth was tepid at 3% q/q deposit
growth reflecting the system trend but SBI's reliance on bulk deposits have been low
with overall bulk deposit book contracting q/q. Large corporate book growth was
high at 28% y/y with mid corporate and SME loan growth at 18% and 21%. ~50%
y/y growth in car loans aided strong growth in retail loan book.
Other 3Q11 highlights
Slow growth in fee income: Core fee income growth has been weak in 3Q11 with
q/q fall in fees and marginal increase from 3Q10 levels.
Operating costs in control: Opex growth for 9M11 has been under control with just
a 14% y/y increase in overall expenses. Pension provisions have led to elevated
operating cost growth for peers in FY11 but with no 2nd pension liability operating
costs has remained under control for SBI.
Tax rate high in 3Q11: Effective tax rate was high at ~40% in 3Q11 as higher
provisions required to increase provision coverage is not tax deductible.
No comments:
Post a Comment