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State Bank of India
Met SBI: High comfort on asset
quality, margins; Reiterate Buy
Met SBI: asset quality comfort high; limited risks to margins
We recently met with SBI. According to SBI, asset quality should improve and will
see higher recoveries going ahead. We are still estimating for ~Rs150bn of fresh
slippages (gross) in FY12 vs. estimated +Rs165bn in FY11. Moreover, SBI
indicated that it will likely maintain its +3.4% margins (as on 9MFY11) for FY11,
although could see qoq decline by +10-12bps from +3.6% in 3QFY11. SBI also
believes that upside to rate is limited to +50-75bps from hereon. Further, SBI is
guiding for +19-20% loan growth in FY12 driven by infra. SME and mortgage.
Pension hit: ~Rs90bn, but earnings can still grow at +32%
SBI’s additional pension liability could rise to Rs90bn (vs. Rs65bn factored-in our
est.), but SBI may likely amortize over 5 years. This implies an additional hit of
~Rs5bn/year. However, earnings even after factoring in the additional pension hit
could still grow +32-33% earnings growth in FY12E-13E.
4Q11 earnings: +45-50% yoy; Risk-return attractive, Buy
We estimate 4Q earnings growth of +45-50% yoy driven by +30% yoy topline
growth (NII) and muted, yoy, operating costs owing to one-off’s in 4QFY10. We
are still building in +30% qoq credit costs (although flat yoy), as SBI could provide
excess for catch-up to achieve 70% cover. Risk-return attractive with RoEs
estimated at +20% (Bk Biz.) and stock trading at 1.6x FY12E adj. BV. Further, it is
most leveraged to improving macros and rate cycle. Reiterate Buy and PO.
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 +20% (Bk Biz.) 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 20pct and CoE OF 14% and assign a +50% 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 7.8x 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
Met SBI: High comfort on asset
quality, margins; Reiterate Buy
Met SBI: asset quality comfort high; limited risks to margins
We recently met with SBI. According to SBI, asset quality should improve and will
see higher recoveries going ahead. We are still estimating for ~Rs150bn of fresh
slippages (gross) in FY12 vs. estimated +Rs165bn in FY11. Moreover, SBI
indicated that it will likely maintain its +3.4% margins (as on 9MFY11) for FY11,
although could see qoq decline by +10-12bps from +3.6% in 3QFY11. SBI also
believes that upside to rate is limited to +50-75bps from hereon. Further, SBI is
guiding for +19-20% loan growth in FY12 driven by infra. SME and mortgage.
Pension hit: ~Rs90bn, but earnings can still grow at +32%
SBI’s additional pension liability could rise to Rs90bn (vs. Rs65bn factored-in our
est.), but SBI may likely amortize over 5 years. This implies an additional hit of
~Rs5bn/year. However, earnings even after factoring in the additional pension hit
could still grow +32-33% earnings growth in FY12E-13E.
4Q11 earnings: +45-50% yoy; Risk-return attractive, Buy
We estimate 4Q earnings growth of +45-50% yoy driven by +30% yoy topline
growth (NII) and muted, yoy, operating costs owing to one-off’s in 4QFY10. We
are still building in +30% qoq credit costs (although flat yoy), as SBI could provide
excess for catch-up to achieve 70% cover. Risk-return attractive with RoEs
estimated at +20% (Bk Biz.) and stock trading at 1.6x FY12E adj. BV. Further, it is
most leveraged to improving macros and rate cycle. Reiterate Buy and PO.
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 +20% (Bk Biz.) 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 20pct and CoE OF 14% and assign a +50% 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 7.8x 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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