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In 3QFY11, operating growth momentum continued and asset quality concerns receded. In FY12,
strong operating profit growth should start to be reflected in a higher bottom line as provision
requirements reduce. SBI appears best placed in a rising interest rate environment given its
favourable liability mix. Buy.
3QFY11: about 67% of incremental loans yoy funded from CASA
About 67% of SBI’s net loan growth over the past year has been funded by CASA (current and
savings accounts), partly leading to about a 80bp yoy improvement in net interest margins (NIMs)
to 3.63% (up 18bp qoq). We factor in largely stable NIMs in FY12-13F, given the sustained
improvement in the proportion of low-cost deposits. The low-cost deposits (CASA) to total
deposits ratio went up 500bp yoy to about 45% as of December 2010 (48% of domestic
deposits). The cost of deposits continues to decline and has fallen about 70bp yoy to 5.2% in
3QFY11. Core fee income grew 21% yoy (up 27% yoy in 9MFY11).
Asset quality concerns largely fading
Net additions to SBI’s gross NPLs tapered off in 3QFY11 on a qoq basis (see Chart 3). Going
forward, we expect slippages to trend further downwards, translating into a lower GNPL ratio
(3.1% as of December 2010). Total standard restructured loans made up 4.5% of the loan book
as of December 2010, marginally higher than the industry average of 3.5-4.0%. The provision
coverage ratio was 64% as of December 2010 (the bank targets 70% by 2QFY12). We factor in
about a 20bp decline in provision for bad loans in FY12F.
Operating costs a wild card
Staff costs have risen 12% yoy in 9MFY11, including one-off provisions for staff benefits.
However, the pension liability has been estimated without considering the 9th bipartite settlement.
Our estimates for FY12-13 factor in a 15-16% yoy increase in operating expenses.
No material change to our estimates; valuations appear attractive
We have cut our earnings estimates for FY11, but our estimates for FY12-13 remain largely
unchanged. SBI (including associate banks) trades at 1.7x FY12F adjusted book value and 9.0x
FY12F earnings, which we believe is attractive. We maintain our Buy recommendation, but cut
our target price from Rs3,703 to Rs3,535, largely due to the cut in our FY11 earning estimates for
SBI (including associate banks).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
In 3QFY11, operating growth momentum continued and asset quality concerns receded. In FY12,
strong operating profit growth should start to be reflected in a higher bottom line as provision
requirements reduce. SBI appears best placed in a rising interest rate environment given its
favourable liability mix. Buy.
3QFY11: about 67% of incremental loans yoy funded from CASA
About 67% of SBI’s net loan growth over the past year has been funded by CASA (current and
savings accounts), partly leading to about a 80bp yoy improvement in net interest margins (NIMs)
to 3.63% (up 18bp qoq). We factor in largely stable NIMs in FY12-13F, given the sustained
improvement in the proportion of low-cost deposits. The low-cost deposits (CASA) to total
deposits ratio went up 500bp yoy to about 45% as of December 2010 (48% of domestic
deposits). The cost of deposits continues to decline and has fallen about 70bp yoy to 5.2% in
3QFY11. Core fee income grew 21% yoy (up 27% yoy in 9MFY11).
Asset quality concerns largely fading
Net additions to SBI’s gross NPLs tapered off in 3QFY11 on a qoq basis (see Chart 3). Going
forward, we expect slippages to trend further downwards, translating into a lower GNPL ratio
(3.1% as of December 2010). Total standard restructured loans made up 4.5% of the loan book
as of December 2010, marginally higher than the industry average of 3.5-4.0%. The provision
coverage ratio was 64% as of December 2010 (the bank targets 70% by 2QFY12). We factor in
about a 20bp decline in provision for bad loans in FY12F.
Operating costs a wild card
Staff costs have risen 12% yoy in 9MFY11, including one-off provisions for staff benefits.
However, the pension liability has been estimated without considering the 9th bipartite settlement.
Our estimates for FY12-13 factor in a 15-16% yoy increase in operating expenses.
No material change to our estimates; valuations appear attractive
We have cut our earnings estimates for FY11, but our estimates for FY12-13 remain largely
unchanged. SBI (including associate banks) trades at 1.7x FY12F adjusted book value and 9.0x
FY12F earnings, which we believe is attractive. We maintain our Buy recommendation, but cut
our target price from Rs3,703 to Rs3,535, largely due to the cut in our FY11 earning estimates for
SBI (including associate banks).
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