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We initiate coverage with OUTPERFORM and price
target of Rs3,380.
Our price target of Rs3,380 is the sum of Rs3,190 for
the core business and Rs192 for subsidiaries. We have
valued the core business at 1.9x P/BV and life insurance
at 12x new business profit for FY12E.
High growth in savings deposits on an already high
base, likely improvement in asset quality and operating
leverage in FY12E, and good performance of
subsidiaries will be the key catalysts for the stock price.
Resilient NIMs – SBI not only has the highest proportion of
savings deposits, which is its key strength, but has also
shown the fastest growth in savings deposits in the past 15
quarters. This has been possible due to focussed branch
expansion over FY08-10. SBI’s dominance in low-cost retail
savings deposits becomes more valuable in a rising rate
environment, like the current one, where rates on term
deposits have already risen 150bps since Jul ’10 while rates
on savings deposits remain unchanged as it is administered
by the RBI.
Strong earnings growth – Higher operating costs and
higher-than-sector slippages have been negative drivers of
profitability over FY08-9M FY11. We believe slippages have
peaked with the seasoning of restructured loans. We also
believe that growth in operating expenses will moderate as
most of the branch expansion and employee addition is now
complete. With resilient NIMs and lower operating and credit
costs, we expect earnings growth to rebound to 26% in
FY12E from a low 12% over FY09-11E.
Valuation – SBI consolidated currently trades at 1.6x P/BV
FY12E, higher than the mean multiple of 1.4x but lower than
the peak multiple of 2.1x. Our target multiple is 1.9x.
Risks – Deregulation of the savings rate, higher-thanexpected
pension costs and higher delinquencies from
microfinance and telecom remain key risks for SBI.
Company profile
SBI is India’s largest bank with assets of ~Rs11trn, and a government of India holding of 59.4%.
It has the largest domestic network, with 12,772 branches and 16,799 ATMs. SBI owns majority
stakes (75% to 100%) in five other banks – known as SBI subsidiary / associate banks. In
addition, SBI has several other non-banking subsidiaries including SBI Life, SBI Mutual Funds
and SBI Capital Markets.
Management team
SBI has recently announced a new chairman. The bank now has four managing directors versus
two earlier.
Pratip Chaudhari has been recently appointed as the chairman of SBI. He has been with the
bank for the last 36 years. Prior to becoming chairman, Chaudhari was the head of
international operations at SBI.
Managing Director and Head of International Operations: H. G. Contractor
Managing Director & Head of Information Technology: A Krishna Kumar
Managing Director & Group Executive (Associates & Subsidiaries): R. Sridharan
Managing Director and CFO: Diwakar Gupta
Deputy Managing Director & Group Executive (Global Markets): Anjan Barua
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We initiate coverage with OUTPERFORM and price
target of Rs3,380.
Our price target of Rs3,380 is the sum of Rs3,190 for
the core business and Rs192 for subsidiaries. We have
valued the core business at 1.9x P/BV and life insurance
at 12x new business profit for FY12E.
High growth in savings deposits on an already high
base, likely improvement in asset quality and operating
leverage in FY12E, and good performance of
subsidiaries will be the key catalysts for the stock price.
Resilient NIMs – SBI not only has the highest proportion of
savings deposits, which is its key strength, but has also
shown the fastest growth in savings deposits in the past 15
quarters. This has been possible due to focussed branch
expansion over FY08-10. SBI’s dominance in low-cost retail
savings deposits becomes more valuable in a rising rate
environment, like the current one, where rates on term
deposits have already risen 150bps since Jul ’10 while rates
on savings deposits remain unchanged as it is administered
by the RBI.
Strong earnings growth – Higher operating costs and
higher-than-sector slippages have been negative drivers of
profitability over FY08-9M FY11. We believe slippages have
peaked with the seasoning of restructured loans. We also
believe that growth in operating expenses will moderate as
most of the branch expansion and employee addition is now
complete. With resilient NIMs and lower operating and credit
costs, we expect earnings growth to rebound to 26% in
FY12E from a low 12% over FY09-11E.
Valuation – SBI consolidated currently trades at 1.6x P/BV
FY12E, higher than the mean multiple of 1.4x but lower than
the peak multiple of 2.1x. Our target multiple is 1.9x.
Risks – Deregulation of the savings rate, higher-thanexpected
pension costs and higher delinquencies from
microfinance and telecom remain key risks for SBI.
Company profile
SBI is India’s largest bank with assets of ~Rs11trn, and a government of India holding of 59.4%.
It has the largest domestic network, with 12,772 branches and 16,799 ATMs. SBI owns majority
stakes (75% to 100%) in five other banks – known as SBI subsidiary / associate banks. In
addition, SBI has several other non-banking subsidiaries including SBI Life, SBI Mutual Funds
and SBI Capital Markets.
Management team
SBI has recently announced a new chairman. The bank now has four managing directors versus
two earlier.
Pratip Chaudhari has been recently appointed as the chairman of SBI. He has been with the
bank for the last 36 years. Prior to becoming chairman, Chaudhari was the head of
international operations at SBI.
Managing Director and Head of International Operations: H. G. Contractor
Managing Director & Head of Information Technology: A Krishna Kumar
Managing Director & Group Executive (Associates & Subsidiaries): R. Sridharan
Managing Director and CFO: Diwakar Gupta
Deputy Managing Director & Group Executive (Global Markets): Anjan Barua
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