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UBS Investment Research
State Bank of India
T otal washout
Event: Kitchen sinking quarter; marred by one offs
SBI reported earnings at Rs 209mn significantly below estimates (UBSe of Rs 31
bn) on account of high provisioning, staff costs, and higher tax rate. NII too came
lower than estimate at Rs 80.6 bn. Quality of earnings disappointed with high
slippages (3.5% of loans), NIM compression adjusted for one off (~40 bps q/q) and
low level of Tier-1 (7.7%). Though some of the elements were non recurring such
as 1) Teaser rate provision of Rs 5 bn 2) Higher pension costs of Rs 8.65 bn 3) Tax
rate at 98% 4) one off interest cost of Rs 2.5 bn which impacted NIMs by 15 bps.
Impact: Cutting FY12 estimates by 14% on lower NIMs, higher LLP
We are revising our earnings estimates downwards for FY12/13 by 14%/7% on
account of cutting our NIM estimates 10 bps in F12/13. We build in a 17 bps
decline in NIMs (against management guidance of 20 bps improvement). Secondly
we raise our credit costs due to higher provisioning required on account of standard
restructured advances and increase in provisions for different NPL buckets.
Action: Maintain Buy; expectation reset profitability to improve
We expect RoE to improve to 15% (from 12.6%) and earnings to grow 44% in
FY12 on account of improved cost to income while lower LLP will drive earnings
in FY13 further. We are building in capital raise of Rs 180 bn in our estimates
Valuation: Lower PT to Rs 2900 from Rs 3150, Maintain Buy
We believe weak earning was on account of clean up due to change in CEO and
metric should improve in the coming quarters. We value core banking business at
1.7xFY12 book and add Rs 282 value of non banking subsidiaries to arrive at our
price target.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
State Bank of India
T otal washout
Event: Kitchen sinking quarter; marred by one offs
SBI reported earnings at Rs 209mn significantly below estimates (UBSe of Rs 31
bn) on account of high provisioning, staff costs, and higher tax rate. NII too came
lower than estimate at Rs 80.6 bn. Quality of earnings disappointed with high
slippages (3.5% of loans), NIM compression adjusted for one off (~40 bps q/q) and
low level of Tier-1 (7.7%). Though some of the elements were non recurring such
as 1) Teaser rate provision of Rs 5 bn 2) Higher pension costs of Rs 8.65 bn 3) Tax
rate at 98% 4) one off interest cost of Rs 2.5 bn which impacted NIMs by 15 bps.
Impact: Cutting FY12 estimates by 14% on lower NIMs, higher LLP
We are revising our earnings estimates downwards for FY12/13 by 14%/7% on
account of cutting our NIM estimates 10 bps in F12/13. We build in a 17 bps
decline in NIMs (against management guidance of 20 bps improvement). Secondly
we raise our credit costs due to higher provisioning required on account of standard
restructured advances and increase in provisions for different NPL buckets.
Action: Maintain Buy; expectation reset profitability to improve
We expect RoE to improve to 15% (from 12.6%) and earnings to grow 44% in
FY12 on account of improved cost to income while lower LLP will drive earnings
in FY13 further. We are building in capital raise of Rs 180 bn in our estimates
Valuation: Lower PT to Rs 2900 from Rs 3150, Maintain Buy
We believe weak earning was on account of clean up due to change in CEO and
metric should improve in the coming quarters. We value core banking business at
1.7xFY12 book and add Rs 282 value of non banking subsidiaries to arrive at our
price target.
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