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State Bank of India — 1Q profit miss on MTM
hit; NPL rise; Cut earnings & PO, Buy
Price Objective Change
1Q: Earnings +20% below est. on MTM hits; PPOP +6% beat
SBI reported earnings of Rs15.8bn, a yoy decline of ~46% (+20% below est.)
driven in part owing to higher than estimated MTM losses (hit) to its bond / equity
book, which is likely to be reversed and higher tax rate (50%), as SBI provided for
regulatory provisions on which tax break was not available. Operating level
earnings grew +18% yoy and came in ~6% higher than estimates driven by very
strong topline growth. Topline grew 33% yoy on 19% yoy loan growth (large
corporate and mid-corporate), but the surprise clearly was margin expansion.
Margins expanded by 44bps yoy / 55bps qoq to +3.6%.
NPLs rise qoq on SME & Agri. slip; building in a credit cycle
Asset quality disappointed, SBI reported gross slippages of Rs62bn (vs. Rs56bn
in 4Q) driven by higher slippages in SME and Agri. But encouraging is that net
accretion (net of recov.+ upgrades) was still flat qoq at ~Rs30bn. Moreover, while
SBI is guiding for slippage decline from 3Q, we are building in elevated slippages
of Rs220bn for FY12 (Rs181bn in FY11), as building emerging credit cycle.
Cut EPS by 14/16%, PO at Rs2700; Risk-return positive, buy
We have cut our earning estimates by ~14/16% building in weak 1Q earnings, as
well as an emerging credit cycle and lower sector growth. Hence, we have upped
our slippage estimates (2.9% 1-yr lag loans) / lowered loan growth estimates (to
<16/14% for FY12/13). But in our view, we still estimate earnings growth of
+45/25% for FY12/13. We also cut our PO to Rs2700. But we think risk-return
remains positive, with RoEs at ~19% (~21% for banking biz.) in FY13 (+15% in
FY11) and stock trading at 1.5x FY13 BV. Non-banks biz. add another
Rs265/share (FY13E). Moreover, our PO is still at +5-10% discount to avg.
historical trading multiple of ~2.0x (no value to subs). Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India — 1Q profit miss on MTM
hit; NPL rise; Cut earnings & PO, Buy
Price Objective Change
1Q: Earnings +20% below est. on MTM hits; PPOP +6% beat
SBI reported earnings of Rs15.8bn, a yoy decline of ~46% (+20% below est.)
driven in part owing to higher than estimated MTM losses (hit) to its bond / equity
book, which is likely to be reversed and higher tax rate (50%), as SBI provided for
regulatory provisions on which tax break was not available. Operating level
earnings grew +18% yoy and came in ~6% higher than estimates driven by very
strong topline growth. Topline grew 33% yoy on 19% yoy loan growth (large
corporate and mid-corporate), but the surprise clearly was margin expansion.
Margins expanded by 44bps yoy / 55bps qoq to +3.6%.
NPLs rise qoq on SME & Agri. slip; building in a credit cycle
Asset quality disappointed, SBI reported gross slippages of Rs62bn (vs. Rs56bn
in 4Q) driven by higher slippages in SME and Agri. But encouraging is that net
accretion (net of recov.+ upgrades) was still flat qoq at ~Rs30bn. Moreover, while
SBI is guiding for slippage decline from 3Q, we are building in elevated slippages
of Rs220bn for FY12 (Rs181bn in FY11), as building emerging credit cycle.
Cut EPS by 14/16%, PO at Rs2700; Risk-return positive, buy
We have cut our earning estimates by ~14/16% building in weak 1Q earnings, as
well as an emerging credit cycle and lower sector growth. Hence, we have upped
our slippage estimates (2.9% 1-yr lag loans) / lowered loan growth estimates (to
<16/14% for FY12/13). But in our view, we still estimate earnings growth of
+45/25% for FY12/13. We also cut our PO to Rs2700. But we think risk-return
remains positive, with RoEs at ~19% (~21% for banking biz.) in FY13 (+15% in
FY11) and stock trading at 1.5x FY13 BV. Non-banks biz. add another
Rs265/share (FY13E). Moreover, our PO is still at +5-10% discount to avg.
historical trading multiple of ~2.0x (no value to subs). Maintain Buy.
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