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State Bank of India
All Round Weakness
What's Changed
Price Target Rs2,450 to Rs2,000
% EPS Change F12e/F13e +3%/-9%
SBI announced weak numbers for F4Q11; PBT miss
58%: The lower results were driven by sharp NIM
contraction during the quarter (38bp QoQ) and large
provisions. Moreover, the bank took a Rs80bn hit
through book value toward pension catch up. This
brought tier 1 ratio to 7.8% (second-lowest across our
Asian coverage universe).
There may have been some “kitchen sink”
elements: The slippage rate spiked to 3.1% of loans in
4Q from 2.3% last quarter. This looks very high to us,
and we are being conservative and not changing our
underlying LLP estimates at this time. We are, however,
building in a Rs15bn hit to reflect the change in RBI
regulations. However, if rates remain at current levels
(lending rates are the highest in 10 years) and the
economy slows, then credit costs could rise sharply
(especially given the large unseasoned infrastructure
loan book).
Underlying progression was weak: We look at Core
PPoP as the key stock driver. This missed our estimate
by a significant 12%. We expect NIMs to continue to taper
off toward 2.8% as deposits reprice upward and
incremental LD ratio continues to decline. In our view, the
stock is unlikely to perform when NIMs are falling. We
expect core PPoP growth in the low single digits in
F2012.
Weak underlying progression; weaker capital base
and valuations (9.9x F2012e Core P/E and 1.5x Core
BV) prompt us to stay UW: Our new EPS 2012E is 3%
lower as we reduce pension costs (already reflected in
lower book). Our new PT implies about 17% downside
from current levels – at our price target the stock would
trade at 8.1x F2012E core P/E and 1.3x core book. If the
macro situation does not improve, the stock could trend
toward our bear case value of Rs1,500.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
All Round Weakness
What's Changed
Price Target Rs2,450 to Rs2,000
% EPS Change F12e/F13e +3%/-9%
SBI announced weak numbers for F4Q11; PBT miss
58%: The lower results were driven by sharp NIM
contraction during the quarter (38bp QoQ) and large
provisions. Moreover, the bank took a Rs80bn hit
through book value toward pension catch up. This
brought tier 1 ratio to 7.8% (second-lowest across our
Asian coverage universe).
There may have been some “kitchen sink”
elements: The slippage rate spiked to 3.1% of loans in
4Q from 2.3% last quarter. This looks very high to us,
and we are being conservative and not changing our
underlying LLP estimates at this time. We are, however,
building in a Rs15bn hit to reflect the change in RBI
regulations. However, if rates remain at current levels
(lending rates are the highest in 10 years) and the
economy slows, then credit costs could rise sharply
(especially given the large unseasoned infrastructure
loan book).
Underlying progression was weak: We look at Core
PPoP as the key stock driver. This missed our estimate
by a significant 12%. We expect NIMs to continue to taper
off toward 2.8% as deposits reprice upward and
incremental LD ratio continues to decline. In our view, the
stock is unlikely to perform when NIMs are falling. We
expect core PPoP growth in the low single digits in
F2012.
Weak underlying progression; weaker capital base
and valuations (9.9x F2012e Core P/E and 1.5x Core
BV) prompt us to stay UW: Our new EPS 2012E is 3%
lower as we reduce pension costs (already reflected in
lower book). Our new PT implies about 17% downside
from current levels – at our price target the stock would
trade at 8.1x F2012E core P/E and 1.3x core book. If the
macro situation does not improve, the stock could trend
toward our bear case value of Rs1,500.
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