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Asset quality bottoming out
Looking at another 25-50 bps hike in deposit and lending rates, to peak in the current interest rate cycle.
Incremental CASA last year was 70%. Bank is targeting incremental CASA at 50%. Current cumulative CASA 48%.
Expecting to keep cost/income ratio flat at 46% in the current fiscal year and targeting to take it to 40%.
Gross NPL at 3.17%; targeting gross NPL ratio at under 3% in FY12.
Mid-corporates saw maximum delinquencies. Bank is now expecting asset quality to improve in this segment.
Restructured book at INR327.5bn; domestic at INR300bn, approximately 5% of loans. Restructured book breakdown:
Corp Accounts Group – INR62.5bn, Mid-corporates group – INR173.5bn, SME – INR53bn.
Valuation and risks
With the stock significantly underperforming the market by 30% since its peak in Oct-10, we see an entry opportunity
materialising at 10% lower levels. We thus have a Neutral rating on the stock.
We expect FY11-13e EPS CAGR at 16%. We value SBI using a weighted average combination of PE (75%), PB (15%),
and economic profit model (EPM, 10%). Target PE and PB multiples for the stock are 11.7x and 1.8x, respectively.
Upside risks include better than expected fee growth and greater pricing power. Downside risks are unexpected slippage in
asset quality and a spike in operational costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asset quality bottoming out
Looking at another 25-50 bps hike in deposit and lending rates, to peak in the current interest rate cycle.
Incremental CASA last year was 70%. Bank is targeting incremental CASA at 50%. Current cumulative CASA 48%.
Expecting to keep cost/income ratio flat at 46% in the current fiscal year and targeting to take it to 40%.
Gross NPL at 3.17%; targeting gross NPL ratio at under 3% in FY12.
Mid-corporates saw maximum delinquencies. Bank is now expecting asset quality to improve in this segment.
Restructured book at INR327.5bn; domestic at INR300bn, approximately 5% of loans. Restructured book breakdown:
Corp Accounts Group – INR62.5bn, Mid-corporates group – INR173.5bn, SME – INR53bn.
Valuation and risks
With the stock significantly underperforming the market by 30% since its peak in Oct-10, we see an entry opportunity
materialising at 10% lower levels. We thus have a Neutral rating on the stock.
We expect FY11-13e EPS CAGR at 16%. We value SBI using a weighted average combination of PE (75%), PB (15%),
and economic profit model (EPM, 10%). Target PE and PB multiples for the stock are 11.7x and 1.8x, respectively.
Upside risks include better than expected fee growth and greater pricing power. Downside risks are unexpected slippage in
asset quality and a spike in operational costs.
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