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State Bank of India (SBI.BO) Rs2,617.30
Equity Research
First Take: Below expectations; SBI performs a cleanup act
News
State Bank of India reported Q4FY11 PAT of Rs 209mn, 99% below GSe and
Bloomberg consensus, primarily on lower NII, higher costs and provisions.
Key highlights: (1) NII came in at Rs80.6 bn (15% below GSe, -11% qoq,
+20% yoy) as calculated NIMs declining 50bps qoq to 2.84%. (2) Core fee
income came in 3% below GSe (+7% yoy) while investment income came
in higher at Rs3.35bn (GSe: Rs1.5bn) (3) Costs came in at Rs68bn (5%
ahead of GSe) driven by higher employee costs that included higher
pension provisions reflecting wage hike. (4) Loan loss provisions came in
Rs39bn, up 72% yoy at 2.1% of advances while SBI also booked investment
depreciation of Rs3bn in 4Q. (5) Gross NPL grew 8% qoq to 3.28% of loans
while net NPLs grew 6% qoq to 1.63% of loans. The provision coverage
ratio rose marginally to 65% (+90bps qoq). (5) Despite lower profit, the tax
provision was significant in 4Q at Rs19bn on PBT of Rs19.2bn, we believe
likely due to no tax benefit taken on provisions made for counter cyclical
provisions.
Analysis
SBI has hiked lending rates by 100 bps (50 bps higher than other banks – a
catch-up rather than a proactive measure) in 1QFY2012 to offset some of
the pressure in margins witnessed. Despite CASA growing by 22% yoy, SBI
deposits grew by a mere 16% yoy and we believe this could pull down loan
growth if the bank does not improve growth from here on. The bank has
now fully provided for pension liability of Rs117bn on account of wage hike
– Rs79 bn through reserves and Rs24.7 bn through profit and loss account
during the year. With the PCR at 65%, SBI now needs to make some more
provisions for NPLs in the quarters ahead to meet RBI 70% requirement.
Tier 1 now is at 7.77% and SBI may need to shore up its capital base in the
near future.
Implications
We place our estimates and target price under review pending the analyst
meeting later this afternoon.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India (SBI.BO) Rs2,617.30
Equity Research
First Take: Below expectations; SBI performs a cleanup act
News
State Bank of India reported Q4FY11 PAT of Rs 209mn, 99% below GSe and
Bloomberg consensus, primarily on lower NII, higher costs and provisions.
Key highlights: (1) NII came in at Rs80.6 bn (15% below GSe, -11% qoq,
+20% yoy) as calculated NIMs declining 50bps qoq to 2.84%. (2) Core fee
income came in 3% below GSe (+7% yoy) while investment income came
in higher at Rs3.35bn (GSe: Rs1.5bn) (3) Costs came in at Rs68bn (5%
ahead of GSe) driven by higher employee costs that included higher
pension provisions reflecting wage hike. (4) Loan loss provisions came in
Rs39bn, up 72% yoy at 2.1% of advances while SBI also booked investment
depreciation of Rs3bn in 4Q. (5) Gross NPL grew 8% qoq to 3.28% of loans
while net NPLs grew 6% qoq to 1.63% of loans. The provision coverage
ratio rose marginally to 65% (+90bps qoq). (5) Despite lower profit, the tax
provision was significant in 4Q at Rs19bn on PBT of Rs19.2bn, we believe
likely due to no tax benefit taken on provisions made for counter cyclical
provisions.
Analysis
SBI has hiked lending rates by 100 bps (50 bps higher than other banks – a
catch-up rather than a proactive measure) in 1QFY2012 to offset some of
the pressure in margins witnessed. Despite CASA growing by 22% yoy, SBI
deposits grew by a mere 16% yoy and we believe this could pull down loan
growth if the bank does not improve growth from here on. The bank has
now fully provided for pension liability of Rs117bn on account of wage hike
– Rs79 bn through reserves and Rs24.7 bn through profit and loss account
during the year. With the PCR at 65%, SBI now needs to make some more
provisions for NPLs in the quarters ahead to meet RBI 70% requirement.
Tier 1 now is at 7.77% and SBI may need to shore up its capital base in the
near future.
Implications
We place our estimates and target price under review pending the analyst
meeting later this afternoon.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
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