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India Equity Research Reports, IPO and Stock News
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• Fresh NPLs remain high,
though NPL recoveries very
strong
• High regulatory provisions
and MTM losses kept the
profit low
• Normal level of profits of
above Rs30bn likely onwards
of 3Q FY12
What's new
State Bank of India’s (SBI) overall
1Q FY12 results were slightly
disappointing, with the net profit
affected by Rs10.48bn of mark-tomarket
(MTM) losses in the
investment book, and fresh NPLs of
Rs61.8bn for the quarter were much
higher than we expected. The
positive part of the result was the
Rs30bn of recoveries and
upgradations, which we believe were
quite strong.
What's the impact
The net profit of Rs15.8bn for 1Q
FY12 was about 15% lower than our
forecast of around Rs18.5bn and
24% lower than the Bloombergconsensus
forecast of Rs20.89bn.
The net profit was down 46% YoY,
due largely to major one-off
provisions of almost Rs18bn on
account of higher provisioning
requirements for NPLs and
restructured loans, and due also to
Rs10.48bn of MTM losses in the
investment portfolio. Management
has guided that there should still be
around Rs5bn of one-off provisions
for 2Q FY12 in order to improve the
provisioning coverage to 70% from
the current 67.25%.
The operational performance was
very strong, with the core NIM
improving by almost 35 bps QoQ. As
expected, operating expenses were
down by 12% QoQ. They were up by
23% YoY, due largely to the
comparison-base impact as there
was a write-back of Rs8.45bn for 1Q
FY11. After adjusting for this writeback,
operating expenses were up
only 5% YoY. SBI also said that
while the pension is fully provided
as of now, it may start to provide
Rs17bn per year from 3Q FY12
onwards on account of a rise in
pension provisions due to wage
increases that occur every five years,
as there will be another round of
wage increases from FY13 onwards.
What we recommend
We have revised down our
consolidated FY12 earnings forecast,
due largely to higher provisions and
lower non-interest income than we
expected previously. We have lowered
our Gordon Growth Model-based sixmonth
target price by 5% to Rs2,365
(from Rs2,490) to account for the
downward revision to our FY12
earnings forecast. We maintain our
Hold (3) rating on the stock. The
movement in fresh formation of NPLs
would be the key upside catalyst and
downside risk, in our view.
How we differ
While we are positive about the bank’s
ability to increase its operational
income, the deterioration in asset
quality remains a concern to us. Our
FY12 EPS forecast is 11% lower than
that of the Bloomberg consensus, and
we may see some further downward
revisions by the consensus.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Fresh NPLs remain high,
though NPL recoveries very
strong
• High regulatory provisions
and MTM losses kept the
profit low
• Normal level of profits of
above Rs30bn likely onwards
of 3Q FY12
What's new
State Bank of India’s (SBI) overall
1Q FY12 results were slightly
disappointing, with the net profit
affected by Rs10.48bn of mark-tomarket
(MTM) losses in the
investment book, and fresh NPLs of
Rs61.8bn for the quarter were much
higher than we expected. The
positive part of the result was the
Rs30bn of recoveries and
upgradations, which we believe were
quite strong.
What's the impact
The net profit of Rs15.8bn for 1Q
FY12 was about 15% lower than our
forecast of around Rs18.5bn and
24% lower than the Bloombergconsensus
forecast of Rs20.89bn.
The net profit was down 46% YoY,
due largely to major one-off
provisions of almost Rs18bn on
account of higher provisioning
requirements for NPLs and
restructured loans, and due also to
Rs10.48bn of MTM losses in the
investment portfolio. Management
has guided that there should still be
around Rs5bn of one-off provisions
for 2Q FY12 in order to improve the
provisioning coverage to 70% from
the current 67.25%.
The operational performance was
very strong, with the core NIM
improving by almost 35 bps QoQ. As
expected, operating expenses were
down by 12% QoQ. They were up by
23% YoY, due largely to the
comparison-base impact as there
was a write-back of Rs8.45bn for 1Q
FY11. After adjusting for this writeback,
operating expenses were up
only 5% YoY. SBI also said that
while the pension is fully provided
as of now, it may start to provide
Rs17bn per year from 3Q FY12
onwards on account of a rise in
pension provisions due to wage
increases that occur every five years,
as there will be another round of
wage increases from FY13 onwards.
What we recommend
We have revised down our
consolidated FY12 earnings forecast,
due largely to higher provisions and
lower non-interest income than we
expected previously. We have lowered
our Gordon Growth Model-based sixmonth
target price by 5% to Rs2,365
(from Rs2,490) to account for the
downward revision to our FY12
earnings forecast. We maintain our
Hold (3) rating on the stock. The
movement in fresh formation of NPLs
would be the key upside catalyst and
downside risk, in our view.
How we differ
While we are positive about the bank’s
ability to increase its operational
income, the deterioration in asset
quality remains a concern to us. Our
FY12 EPS forecast is 11% lower than
that of the Bloomberg consensus, and
we may see some further downward
revisions by the consensus.
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