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State Bank of India is the country’s largest commercial bank in term of profit,
assets, advances, deposits, branches and employee. SBI played a extremely
important role in developing India, providing the financing needed to modernize
the country’s agriculture industry and develop new irrigation method and
backing the creation of dairy farming as well as pork and poultry industry. The
Bank also provides the backing for the development of country’s infrastructure.
Robust operating performance
During the quarter, advances of the bank increased by 4.2% qoq and 15.87%
YOY. Deposits grew by 4.9% qoq and 10.7% YOY on the back of healthy
27.7% growth in CASA deposits. The CASA ratio of the Bank increased by
30bp to 47.8% as on the quarter ended September 30, 2010.
Comfortable capital adequacy
Capital adequacy ratio as per the Basel ii norms of the bank is 13.39% at the
end of the March 2010 with Tier-I at 9.45%. The capital adequacy of the bank is
high as compare to the minimum mandatory requirement of 9%. The SBI is
planning to raise Rs.20000cr through a right issue in last quarter of this fiscal. It
would be increase the capital adequacy of the Bank.
VALUATION
At the current price of Rs. 2556, the stock is trading at just 12.18x and
8.85x times of our estimated FY11E & FY12E earning. We thus recommend
a “BUY” with a target price of Rs. 3140.
INVESTMENT ARGUMENT
Nationwide distribution channel
SBI provides a range of banking services through its vast network of branches
in India and overseas. The State Bank group with a network of 17337 branches
including 4841 branches of its six associates Banks dominates the banking
industry. In addition to banking, the Group, through its various subsidiaries,
provides a whole range of financial services which include life insurance,
merchant banking, mutual fund, credit cards, factoring, security trading, pension
fund management and primary dealership in the money market. SBI has seven
associates’ banks, “State Bank of Bikaner & Jaipur, State Bank of Hyderabad,
State Bank of Indore, State Bank of Mysore, State Bank of Sourashtra and State
Bank of Travancore”. But now SBI has only five associate’s banks that with SBI
constitute the State Bank group. Acquisition of State Bank of Indore added 470
branches to SBI’s existing network of 12448 and over 21000 ATMs.
Overseas expansion
The number of foreign offices increased from 92 as on 31st March 2009 to 142
as on 31st March 2010 spread across 32 countries. The offices comprised 42
branches, 8 representative offices, 2 sub offices, 2 extension counters, 82
offices of the six foreign banks subsidiaries, an associates (Bank of Bhutan),
equity investments in a foreign bank (Sterling Banks, Nigeria) and 2 managed
exchange companies. Advances and Deposits of the bank expected to increase
from its foreign branches because SBI has opened two more branches in
overseas market in current financial year.
NIM continues its ride on the growth path
The Bank’s reported NIM has been witnessing an upward trend since hitting a
low 2.30% in 1QFY2010, from which it has improved by 113bp to 3.43% in
2QFY2011. We expect the NIM of the bank will be increase because of the
increase in the interest income of the bank.
Advances expected to grow because of the industrial demand and
infrastructure funding
Gross Advances of the bank grew by Rs. 92940cr, a growth of 16.94% from Rs.
548540cr in March 09 to Rs. 641480cr in March 2010. Consolidated advances
of the bank grew by 15.88% from 750362.38cr in March 2009 to Rs.
869501.63cr. SBI advances expected to increase by 20% in financial year 2011
and 22.4% in financial year 2012 because of the industrial demand and more
infrastructure funding by the bank. GOI is planning to invest around $1tr in next
five year plan. Bank’s advances are highly correlated to the overall performance
of the economy in tune to the industrial performance. Industrial demand for the
loan will be remain high in near future because of the more industrial output and
government spending. Growth in the retail loan (Auto loan, Home loan, Personal
loan, Education loan) expected to increase in future. Gross advances of the
Bank grew by 19.47% from Rs. 580237cr as on quarter ended September 30th
2009 to Rs. 693224cr as on quarter ended September 30th 2010.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India is the country’s largest commercial bank in term of profit,
assets, advances, deposits, branches and employee. SBI played a extremely
important role in developing India, providing the financing needed to modernize
the country’s agriculture industry and develop new irrigation method and
backing the creation of dairy farming as well as pork and poultry industry. The
Bank also provides the backing for the development of country’s infrastructure.
Robust operating performance
During the quarter, advances of the bank increased by 4.2% qoq and 15.87%
YOY. Deposits grew by 4.9% qoq and 10.7% YOY on the back of healthy
27.7% growth in CASA deposits. The CASA ratio of the Bank increased by
30bp to 47.8% as on the quarter ended September 30, 2010.
Comfortable capital adequacy
Capital adequacy ratio as per the Basel ii norms of the bank is 13.39% at the
end of the March 2010 with Tier-I at 9.45%. The capital adequacy of the bank is
high as compare to the minimum mandatory requirement of 9%. The SBI is
planning to raise Rs.20000cr through a right issue in last quarter of this fiscal. It
would be increase the capital adequacy of the Bank.
VALUATION
At the current price of Rs. 2556, the stock is trading at just 12.18x and
8.85x times of our estimated FY11E & FY12E earning. We thus recommend
a “BUY” with a target price of Rs. 3140.
INVESTMENT ARGUMENT
Nationwide distribution channel
SBI provides a range of banking services through its vast network of branches
in India and overseas. The State Bank group with a network of 17337 branches
including 4841 branches of its six associates Banks dominates the banking
industry. In addition to banking, the Group, through its various subsidiaries,
provides a whole range of financial services which include life insurance,
merchant banking, mutual fund, credit cards, factoring, security trading, pension
fund management and primary dealership in the money market. SBI has seven
associates’ banks, “State Bank of Bikaner & Jaipur, State Bank of Hyderabad,
State Bank of Indore, State Bank of Mysore, State Bank of Sourashtra and State
Bank of Travancore”. But now SBI has only five associate’s banks that with SBI
constitute the State Bank group. Acquisition of State Bank of Indore added 470
branches to SBI’s existing network of 12448 and over 21000 ATMs.
Overseas expansion
The number of foreign offices increased from 92 as on 31st March 2009 to 142
as on 31st March 2010 spread across 32 countries. The offices comprised 42
branches, 8 representative offices, 2 sub offices, 2 extension counters, 82
offices of the six foreign banks subsidiaries, an associates (Bank of Bhutan),
equity investments in a foreign bank (Sterling Banks, Nigeria) and 2 managed
exchange companies. Advances and Deposits of the bank expected to increase
from its foreign branches because SBI has opened two more branches in
overseas market in current financial year.
NIM continues its ride on the growth path
The Bank’s reported NIM has been witnessing an upward trend since hitting a
low 2.30% in 1QFY2010, from which it has improved by 113bp to 3.43% in
2QFY2011. We expect the NIM of the bank will be increase because of the
increase in the interest income of the bank.
Advances expected to grow because of the industrial demand and
infrastructure funding
Gross Advances of the bank grew by Rs. 92940cr, a growth of 16.94% from Rs.
548540cr in March 09 to Rs. 641480cr in March 2010. Consolidated advances
of the bank grew by 15.88% from 750362.38cr in March 2009 to Rs.
869501.63cr. SBI advances expected to increase by 20% in financial year 2011
and 22.4% in financial year 2012 because of the industrial demand and more
infrastructure funding by the bank. GOI is planning to invest around $1tr in next
five year plan. Bank’s advances are highly correlated to the overall performance
of the economy in tune to the industrial performance. Industrial demand for the
loan will be remain high in near future because of the more industrial output and
government spending. Growth in the retail loan (Auto loan, Home loan, Personal
loan, Education loan) expected to increase in future. Gross advances of the
Bank grew by 19.47% from Rs. 580237cr as on quarter ended September 30th
2009 to Rs. 693224cr as on quarter ended September 30th 2010.
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