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State Bank of India
4Q: Earnings disappoint on
asset quality; Maintain Buy
„4Q: Earnings disappoint on weak asset quality, tax rates
SBI’s 4Q11 earnings came in sharply lower (+99% below) than est. and
disappointed owing to 1) weak asset quality resulting in much higher credit costs
and; 2) higher tax rates on absence of tax breaks on certain provisions (NPLs and
staff). Topline was also ~5% lower than our est. (adj. for higher int. exp. on PF),
as margins (adj.) were down ~25bps qoq to 3.25% on lower yields, but grew 20%
yoy on 20% yoy loan growth. Fees disappointed (grew only 7% yoy) in 4Q. CASA
up ~50bps qoq and ~200bps yoy to ~49%. SBI has taken a one-time pension
charge of Rs79bn through reserves in FY11. Tier 1 low at 7.8%.
NPLs rise on agri, SME and corp. slippages
NPL accretion came in at Rs56.5bn for 4Q (vs. Rs39bn in 3Q) on Agri., SME and
Corp. Mgmt. indicated that FY11 was a challenging year, but going ahead expects
asset quality to normalize, as majority of headwinds behind. Headline gross up
8% qoq (at 3.3%) and net up 6% (at 1.6%). Prov. cover at ~65%. We estimate net
formation at +Rs80bn in FY12 (Rs98bn in FY11, including ~Rs15bn of one-off’s).
PO cut to factor in EPS cut and knock on BV on pension hit
We cut our PO to Rs2950 factoring in earnings cut (~10/12% for FY12/13) and
one-time BV hit on pension charge in FY11. While earnings growth strong in FY12
(yoy) at +65% on base effect, operating earnings growth est. also at 24% yoy
based on 18% loan growth and margins lower by ~15-20bps yoy (mgmt. still
guiding for flat to higher margins). While 4Q disappointed, risk-return is positive,
with RoEs at ~20% in FY12 (vs <13% in FY11) and stock trading at 1.7x FY12E
BV. Non-banks biz. add another Rs269/share. Assuming capital raise in FY12
(~US$3bn), RoEs still likely at ~18%, with stock to trade at 1.5x FY12E book).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
4Q: Earnings disappoint on
asset quality; Maintain Buy
„4Q: Earnings disappoint on weak asset quality, tax rates
SBI’s 4Q11 earnings came in sharply lower (+99% below) than est. and
disappointed owing to 1) weak asset quality resulting in much higher credit costs
and; 2) higher tax rates on absence of tax breaks on certain provisions (NPLs and
staff). Topline was also ~5% lower than our est. (adj. for higher int. exp. on PF),
as margins (adj.) were down ~25bps qoq to 3.25% on lower yields, but grew 20%
yoy on 20% yoy loan growth. Fees disappointed (grew only 7% yoy) in 4Q. CASA
up ~50bps qoq and ~200bps yoy to ~49%. SBI has taken a one-time pension
charge of Rs79bn through reserves in FY11. Tier 1 low at 7.8%.
NPLs rise on agri, SME and corp. slippages
NPL accretion came in at Rs56.5bn for 4Q (vs. Rs39bn in 3Q) on Agri., SME and
Corp. Mgmt. indicated that FY11 was a challenging year, but going ahead expects
asset quality to normalize, as majority of headwinds behind. Headline gross up
8% qoq (at 3.3%) and net up 6% (at 1.6%). Prov. cover at ~65%. We estimate net
formation at +Rs80bn in FY12 (Rs98bn in FY11, including ~Rs15bn of one-off’s).
PO cut to factor in EPS cut and knock on BV on pension hit
We cut our PO to Rs2950 factoring in earnings cut (~10/12% for FY12/13) and
one-time BV hit on pension charge in FY11. While earnings growth strong in FY12
(yoy) at +65% on base effect, operating earnings growth est. also at 24% yoy
based on 18% loan growth and margins lower by ~15-20bps yoy (mgmt. still
guiding for flat to higher margins). While 4Q disappointed, risk-return is positive,
with RoEs at ~20% in FY12 (vs <13% in FY11) and stock trading at 1.7x FY12E
BV. Non-banks biz. add another Rs269/share. Assuming capital raise in FY12
(~US$3bn), RoEs still likely at ~18%, with stock to trade at 1.5x FY12E book).
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