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State Bank of India
▲ Overweight
Previous: Neutral
SBI.BO, SBIN IN
Provisioning pressure easing, Upgrade to Overweight
• We upgrade SBI to Overweight with a PT of Rs3200/share. The key
triggers for our upgrade are: (1) regulatory relief from higher NPA
provisioning, (2) multiple positives from the teaser loan withdrawal,
and (3) better placed than other PSU banks on margins. With better
asset quality and relatively lower margin pressure, we continue our
relative preference for private over PSU banks with ICICI as our top
pick.
• More focused on profitability: We see SBI’s announcement of the
termination of teaser loans as positive and this shows sharper focus on
profitability under the new management. Teaser loan withdrawal would
aid margins in the near term (new loans ~50bps higher than teaser loans
in year 1) and also ease provisioning requirement on new loans.
• Regulatory relief on provisions: SBI's credit cost was expected to
remain elevated in FY12 due to the coverage shortfall. But the recent
RBI's circular does away with the need for 70% provisioning for post
Sep-10 delinquencies. Also further extension may be provided to banks
like SBI, which are short of 70% PCR. This significantly eases the near
term P&L stress for SBI. Asset quality could improve as recovery in
exports could aid SMEs.
• Better-off than other PSUs on margins: PSU bank margins are
expected to be under pressure but we expect SBI to be relatively better
off on margins v/s peers. Downward re-pricing of high costs 1000-day
deposits (>Rs500bn) and upward repricing of teaser loans (Rs350bn)
would help margins.
• Upgrade to Overweight: We increase earnings by 4% factoring in
lower credit costs and upgrade SBI to Overweight from Neutral. We
increase our Gordon growth based Mar-12 PT to Rs3200/share (Rs2800
earlier) as we see upside potential to SBI's ROAs. Our PT implies 1.5x
FY13 P/B inline with target valuations for PNB/BOB due to possible
upside potential to earnings and ROAs. Key downside risks are high
pension provisions and capital adequacy pressures on growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
▲ Overweight
Previous: Neutral
SBI.BO, SBIN IN
Provisioning pressure easing, Upgrade to Overweight
• We upgrade SBI to Overweight with a PT of Rs3200/share. The key
triggers for our upgrade are: (1) regulatory relief from higher NPA
provisioning, (2) multiple positives from the teaser loan withdrawal,
and (3) better placed than other PSU banks on margins. With better
asset quality and relatively lower margin pressure, we continue our
relative preference for private over PSU banks with ICICI as our top
pick.
• More focused on profitability: We see SBI’s announcement of the
termination of teaser loans as positive and this shows sharper focus on
profitability under the new management. Teaser loan withdrawal would
aid margins in the near term (new loans ~50bps higher than teaser loans
in year 1) and also ease provisioning requirement on new loans.
• Regulatory relief on provisions: SBI's credit cost was expected to
remain elevated in FY12 due to the coverage shortfall. But the recent
RBI's circular does away with the need for 70% provisioning for post
Sep-10 delinquencies. Also further extension may be provided to banks
like SBI, which are short of 70% PCR. This significantly eases the near
term P&L stress for SBI. Asset quality could improve as recovery in
exports could aid SMEs.
• Better-off than other PSUs on margins: PSU bank margins are
expected to be under pressure but we expect SBI to be relatively better
off on margins v/s peers. Downward re-pricing of high costs 1000-day
deposits (>Rs500bn) and upward repricing of teaser loans (Rs350bn)
would help margins.
• Upgrade to Overweight: We increase earnings by 4% factoring in
lower credit costs and upgrade SBI to Overweight from Neutral. We
increase our Gordon growth based Mar-12 PT to Rs3200/share (Rs2800
earlier) as we see upside potential to SBI's ROAs. Our PT implies 1.5x
FY13 P/B inline with target valuations for PNB/BOB due to possible
upside potential to earnings and ROAs. Key downside risks are high
pension provisions and capital adequacy pressures on growth.
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