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State Bank of India
Improvement in the quality of earnings going ahead
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ SBI mentioned that for FY12, loan growth is likely to sustain at +20-21%.
Focus on retail (mortgage, autos, and education). On the corporate side,
sitting on pipeline of sanctions (+Rs200bn).
„ While margins will be down qoq in 4Q, SBI highlighted that margin to sustain
at +3.2-3.3% for FY11 and FY12, which is higher than our current estimates.
It highlighted that in rising rates it would benefit given that +65% of loans are
PLR linked and the balance too carries re-set after 1-yr. Further, aims for
CASA at +45-46% to sustain, which would also benefit margins.
„ SBI indicated that asset quality will start showing a sharp improvement going
in to 4Q and beyond, with NPL accretion lower qoq and pick-up in recoveries.
Provision cover at +64%. SBI aims to increase the cover and reach 70% by
Jun’10 vs. current deadline of Sep’10.
„ SBI also highlighted that core fees growing at +25-30% over last few quarters
likely to grow at similar rates with thrust on govt. fees (18-19% of core fees),
loan linked fees and, 3rd party dist. SBI is also taking / taken new initiatives
like financial advisory, merchant acquisition and general insurance to further
fuel growth.
Price objective basis & risk
SBI (SBINF / SBKFF)
Our PO on SBI is Rs3400, as with earnings growth is forecast at +35/30% in
FY12/13, RoE rising to +19% and trading at <1.6x FY12 adj. BV. Further, it is
most leveraged to improving macros and rate cycle. Non-banks biz. add another
Rs269/share.
Our PO is benchmarked to Gordon modle theory where we assume RoE of 19pct
and CoE OF 14% and assign a 60% premium to theoritical multiples owing to its
large liability franchise and dominant position in the market (+23pct market share
at group level). On a PE basis, the stock is trading at 7.7x FY12E if we adjust the
share price for the subsidiary value. Risks are a sharp rise in NPLs and a hike in
interest rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
Improvement in the quality of earnings going ahead
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ SBI mentioned that for FY12, loan growth is likely to sustain at +20-21%.
Focus on retail (mortgage, autos, and education). On the corporate side,
sitting on pipeline of sanctions (+Rs200bn).
„ While margins will be down qoq in 4Q, SBI highlighted that margin to sustain
at +3.2-3.3% for FY11 and FY12, which is higher than our current estimates.
It highlighted that in rising rates it would benefit given that +65% of loans are
PLR linked and the balance too carries re-set after 1-yr. Further, aims for
CASA at +45-46% to sustain, which would also benefit margins.
„ SBI indicated that asset quality will start showing a sharp improvement going
in to 4Q and beyond, with NPL accretion lower qoq and pick-up in recoveries.
Provision cover at +64%. SBI aims to increase the cover and reach 70% by
Jun’10 vs. current deadline of Sep’10.
„ SBI also highlighted that core fees growing at +25-30% over last few quarters
likely to grow at similar rates with thrust on govt. fees (18-19% of core fees),
loan linked fees and, 3rd party dist. SBI is also taking / taken new initiatives
like financial advisory, merchant acquisition and general insurance to further
fuel growth.
Price objective basis & risk
SBI (SBINF / SBKFF)
Our PO on SBI is Rs3400, as with earnings growth is forecast at +35/30% in
FY12/13, RoE rising to +19% and trading at <1.6x FY12 adj. BV. Further, it is
most leveraged to improving macros and rate cycle. Non-banks biz. add another
Rs269/share.
Our PO is benchmarked to Gordon modle theory where we assume RoE of 19pct
and CoE OF 14% and assign a 60% premium to theoritical multiples owing to its
large liability franchise and dominant position in the market (+23pct market share
at group level). On a PE basis, the stock is trading at 7.7x FY12E if we adjust the
share price for the subsidiary value. Risks are a sharp rise in NPLs and a hike in
interest rates.
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