India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Stay with the leader…
Brand and size remain key strengths…
• SBI has the highest market share of 16.40% in domestic advances
and 16.4% in deposits with its 14,000 branches. This provides a
pricing edge and capability to change market dynamics also. Its
B/S size stands at | 10,000 billion and it has generated | 80-90
billion profit annually
• SBI aims to be among the top 50 global banks and is a proxy play
in the Indian financial services space
• It is present in all financial services including life insurance, capital
markets, factoring, etc. which provides it an edge over other
smaller players
• The credit to GDP (nominal) ratio is 50% in India, offering enough
space to grow. With the economy expected to grow at around 8%
per annum in the next three to five years, credit demand is going
to expand. Hence, enough opportunity exists
• The bank is in the process of merging all the remaining five
associate state banks, leading to growing market share and
increasing scale of assets
Going ahead
• Benefiting from its scale on the borrowing cost side, SBI
generates NIM of ~3% on a sustainable basis. We believe strong
net interest income growth over the next few years will boost
operating profits
• Credit growth is in line with the industry at 17-18% for the next
three years to lead to PAT CAGR of 15-18% during that period
• The C/I ratio will be around 45-50% in future also
• SBI maintains strong CASA (low cost deposits) of 47.5% on
account of its over 14,000 liability franchises
• Asset quality is slightly under pressure with net NPA of 1.63% and
being the largest bank we see NNPA continuing at these levels
Valuation
SBI with its return ratios of 0.8-1% RoA and 14-16% RoE is expected to
trade at a premium to other public sector banks due to its scale. All major
subsidiaries including SBI Life are profitable. Associate banks expected to
be merged over the next 12-24 months, have also generated RoA of 0.8-
1%, which will keep consolidated return ratios healthy. There is a rights
issue of | 20,000 crore that is expected in H2FY11, which should further
strengthen the bank with much needed capital. With strong economic
growth, the financial services sector should outperform and SBI will be a
significant contributor in the same.
No comments:
Post a Comment