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SBI management continues to clear the air
News
SBI hosted a follow-on analyst meeting today, wherein the top management
addressed concerns post 4QFY11. Key highlights: (1) SBI reiterated its FY12
NIM guidance at 3.5% (vs. 3.3% in FY11) by increasing the tenure of loans to
existing borrowers, maintaining high CASA (at 48.7%). (2) Focus on asset
quality: SBI conceded the need to strengthen its systems and has appointed a
MD with sole responsibility. The target gross NPA in FY12 is c.2.75% (vs. 3.28%
in FY11) on the back of higher recoveries and lower slippages, as SBI believes
the bulk of the pain has been taken. However, SBI flagged more cases of moral
hazard post the debt-waiver in Agri loans (FY11 NPLs at 6.37% vs. 3.66% in
FY10). (3) Pension liability: SBI stated that it has no unfunded pension liability
deficit (c.Rs110bn provided in 4QFY11, 17% of FY11 net worth). We believe the
pension liability provisions will remain a long-term issue for PSU banks unless
they start factoring in the wage hike effected once every five years in their
actuarial calculation (next wage hike will be effective from 1 November 2012).
Additionally, it is not clear if there is any risk of improved life expectancy, as
banks might be using the old LIC mortality tables (last updated 1994-96). (4)
High tax rate of 44.7% in FY11 was due to Rs47.5bn of provisions pertaining
to standard assets/superannuation, disallowed for tax purposes. Normalized
tax rate indicated at 37%. (5) Other data shared: (a) Exposure to power sector
of Rs300bn (4% of total loans), of which Rs50-60bn was to state electricity
boards; (b) airline exposure of Rs45bn (0.6%); (c) 2G telecom exposure: Rs23bn
(0.3%), of which Rs15bn pertains to companies under investigation.
Analysis
We had upgraded the stock to Neutral (from Sell) post the 4QFY11 results, as
valuations had corrected significantly and in our view management is taking
corrective measures. Today’s discussions help alleviate concerns, but we believe
execution would inspire confidence gradually.
Implications
We retain our Neutral and 12-m SOTP TP of Rs2,650 (1.47xFY12 standalone P/BV), with 15% upside vs 25%-30% for our Buy-rated stocks.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SBI management continues to clear the air
News
SBI hosted a follow-on analyst meeting today, wherein the top management
addressed concerns post 4QFY11. Key highlights: (1) SBI reiterated its FY12
NIM guidance at 3.5% (vs. 3.3% in FY11) by increasing the tenure of loans to
existing borrowers, maintaining high CASA (at 48.7%). (2) Focus on asset
quality: SBI conceded the need to strengthen its systems and has appointed a
MD with sole responsibility. The target gross NPA in FY12 is c.2.75% (vs. 3.28%
in FY11) on the back of higher recoveries and lower slippages, as SBI believes
the bulk of the pain has been taken. However, SBI flagged more cases of moral
hazard post the debt-waiver in Agri loans (FY11 NPLs at 6.37% vs. 3.66% in
FY10). (3) Pension liability: SBI stated that it has no unfunded pension liability
deficit (c.Rs110bn provided in 4QFY11, 17% of FY11 net worth). We believe the
pension liability provisions will remain a long-term issue for PSU banks unless
they start factoring in the wage hike effected once every five years in their
actuarial calculation (next wage hike will be effective from 1 November 2012).
Additionally, it is not clear if there is any risk of improved life expectancy, as
banks might be using the old LIC mortality tables (last updated 1994-96). (4)
High tax rate of 44.7% in FY11 was due to Rs47.5bn of provisions pertaining
to standard assets/superannuation, disallowed for tax purposes. Normalized
tax rate indicated at 37%. (5) Other data shared: (a) Exposure to power sector
of Rs300bn (4% of total loans), of which Rs50-60bn was to state electricity
boards; (b) airline exposure of Rs45bn (0.6%); (c) 2G telecom exposure: Rs23bn
(0.3%), of which Rs15bn pertains to companies under investigation.
Analysis
We had upgraded the stock to Neutral (from Sell) post the 4QFY11 results, as
valuations had corrected significantly and in our view management is taking
corrective measures. Today’s discussions help alleviate concerns, but we believe
execution would inspire confidence gradually.
Implications
We retain our Neutral and 12-m SOTP TP of Rs2,650 (1.47xFY12 standalone P/BV), with 15% upside vs 25%-30% for our Buy-rated stocks.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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