State Bank of India -Balance sheet clean up hits profit: Emkay

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State Bank of India

Balance sheet clean up hits profit

HOLD

CMP: Rs 2,193                                       Target Price: Rs 2,200

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n     NII at Rs96.9bn, well ahead of our and street expectations. However, net profit at Rs15.8bn was dragged by provisions towards regulated requirements and higher tax outgo

n     Key positives: NIM expansion of 44bps yoy aided by 2% qoq growth in loan book, lending rate hikes (170bps+ in past 1-year) and deposit repricing at relatively lower rates

n     Key negatives: Asset quality worsens; Net NPL/networth at 18% and slippages at 3.2% annualized add to the disgrunt. Slippages from SME and agri segment to remain high in Q2

n     Lowering FY12E earnings by 12% for higher NPAs and tax provisions. Rights issue by FY12 a must for balance sheet growth. Maintain HOLD with TP of Rs2,200