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NIMs and asset quality disappointed in 4QFY11. The one-time pension liability revaluation
reduced book value by about 14% in FY11. We cut FY12-13F earnings, as we factor in a
base-case scenario of stable NIMs and higher loan loss provisions. Post the stock price
correction, valuations appear attractive. Buy
NIMs fall 40-50bp qoq in 4Q11; management expects a 20bp improvement in FY12
Net interest margins (NIMs) dropped about 50bp qoq to 3.07% in 4QFY11 (up 66bp yoy to
3.32% in FY11). Yield on loans declined qoq, partly as the bulk of incremental lending in
4QFY11 was to the priority sector. Management expects NIMs of 3.5% in FY12 (up 18bp
yoy). Given the low base in 4QFY11, we have factored in only a four basis point yoy increase
in NIM in FY12.
Slippages remain high
Slippages increased to 260bp of average loans in FY11 (vs 200bp in FY10), leading to an
increase in provision for bad loans. The provision for bad loans increased to 130bp of
average loans in FY11 (90bp in FY10). Furthermore, gross NPLs at 3.2% of loans, and
standard restructured loans at 4.5% of loan book, remain relatively high compared to peers.
The increase in NPLs in FY11 is partly due to the transition to system-based NPL
recognition.
Pension liability revalued and charged to reserves, thus lowering book value
SBI’s pension liability (as per the ninth Bipartite settlement) was Rs117bn as of March 2011
(Rs184 per share), of which about Rs25bn was charged to the profit and loss account in
FY11 and Rs80bn was charged off to reserves. Largely due to the aforementioned
adjustment, the book value as of FY11 was Rs1,024 per share (vs our earlier estimate of
Rs1,187 per share, see Table 3). SBI has not created a deferred tax asset on the preceding
provision, which seems prudent to us.
Cut in our earnings forecasts, but ROEs improve due to lower base
We cut our FY12-13F net profit 8-10%, largely led by a cut in our core earnings forecasts and
higher provisions. We cut our target price to Rs2,997 per share, largely due to the cut in earnings
and lower book value (as previously explained). We maintain a Buy. At our TP, SBI (including
associate banks) trades at 2.0x FY12F BV and 10.9x FY12F earnings, based on our forecasts.
Tier-I capital was 7.77% as of March 2011 and may necessitate an equity dilution in the medium
term. However, we do not factor equity dilution into our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NIMs and asset quality disappointed in 4QFY11. The one-time pension liability revaluation
reduced book value by about 14% in FY11. We cut FY12-13F earnings, as we factor in a
base-case scenario of stable NIMs and higher loan loss provisions. Post the stock price
correction, valuations appear attractive. Buy
NIMs fall 40-50bp qoq in 4Q11; management expects a 20bp improvement in FY12
Net interest margins (NIMs) dropped about 50bp qoq to 3.07% in 4QFY11 (up 66bp yoy to
3.32% in FY11). Yield on loans declined qoq, partly as the bulk of incremental lending in
4QFY11 was to the priority sector. Management expects NIMs of 3.5% in FY12 (up 18bp
yoy). Given the low base in 4QFY11, we have factored in only a four basis point yoy increase
in NIM in FY12.
Slippages remain high
Slippages increased to 260bp of average loans in FY11 (vs 200bp in FY10), leading to an
increase in provision for bad loans. The provision for bad loans increased to 130bp of
average loans in FY11 (90bp in FY10). Furthermore, gross NPLs at 3.2% of loans, and
standard restructured loans at 4.5% of loan book, remain relatively high compared to peers.
The increase in NPLs in FY11 is partly due to the transition to system-based NPL
recognition.
Pension liability revalued and charged to reserves, thus lowering book value
SBI’s pension liability (as per the ninth Bipartite settlement) was Rs117bn as of March 2011
(Rs184 per share), of which about Rs25bn was charged to the profit and loss account in
FY11 and Rs80bn was charged off to reserves. Largely due to the aforementioned
adjustment, the book value as of FY11 was Rs1,024 per share (vs our earlier estimate of
Rs1,187 per share, see Table 3). SBI has not created a deferred tax asset on the preceding
provision, which seems prudent to us.
Cut in our earnings forecasts, but ROEs improve due to lower base
We cut our FY12-13F net profit 8-10%, largely led by a cut in our core earnings forecasts and
higher provisions. We cut our target price to Rs2,997 per share, largely due to the cut in earnings
and lower book value (as previously explained). We maintain a Buy. At our TP, SBI (including
associate banks) trades at 2.0x FY12F BV and 10.9x FY12F earnings, based on our forecasts.
Tier-I capital was 7.77% as of March 2011 and may necessitate an equity dilution in the medium
term. However, we do not factor equity dilution into our estimates.
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