State Bank of India Lower estimates, target price; maintain Sell ::anand rathi,

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State Bank of India
Lower estimates, target price; maintain Sell
We slash SBI’s FY12e/FY13e net profit by 5.2%/5.3% on lower
NIM assumptions and higher employee pension provisions.
Hence, we cut our target price to `2,393 from `2,585. We retain
Sell as SBI’s high employee liabilities and provisions to raise
NPA coverage would keep RoE lower than peers’.
 CASA share improves, yet NIM decline likely. NII declined
11% qoq, led by 90bps fall in domestic credit-to-deposit to 76.3%.
CASA share improved 49bps qoq to 48.7%, and grew 22.1% yoy.
Yet, given SBI’s rising liability costs, particularly short-tenure
deposits and a stretched credit-to-deposit, NIM has little scope
for gains. We lower our NII for FY12e/FY13e by 6.1%/6.6%.
 Higher employee expenses erode networth. Staff costs
increased 20.1% qoq due to provisions for pensions (`8.8bn in
4QFY11; `24.7bn in FY11). While management estimates `25bn
of pension provisions in FY12, gratuity provisions are likely to be
lower (`4bn amortized over four years). SBI also adjusted
`79.27bn from its reserves for previous pension provisions.
 Asset quality suffers, low CAR necessitates infusion. Fresh
slippages of `56.5bn indicate that asset quality is still suspect; 17%
of restructured loans (`31.3bn) are NPAs. Additional provisions
of `11bn (for 70% NPA coverage) and `5bn (for restructured
standard loans) would limit earnings growth. The low tier-1 of
7.77% makes capital infusion paramount for business growth.
 Valuation and risks. We value the standalone bank at `1,753
(1.7x 1-year forward BV) and subsidiaries at `640. Risks: lower
credit costs; faster accretion in low-cost deposits.