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Operating profit healthy, credit costs remain high; fairly valued
Increase in lending rates, high CASA ratio and repricing of high-cost term deposits
should help SBI deliver strong NIM. Fee income is likely to grow at a moderate
pace as focus is on interest-yielding business. Strong NIM, however, is being
offset by high credit costs as asset quality continues to be weak, especially
agriculture and SME loans. Management expects capital infusion from govt. in
FY12, however till then growth should be constrained by low Tier 1. The stock
trades at 1.5x FY12E P/B, ~7% premium to BoB. Maintain Hold.
1QFY12 results – strong NIM, weak asset quality
Net profit at INR 15.83bn, -45.7% YoY, was ~20% below consensus estimates.
NIM at 3.62%, +44bps YoY and +55bps QoQ, surprised possibly as the bank
benefited from recent increases in lending rates. Loan growth at 18% YoY was
less than the system growth. Fee income was weak at INR26.33bn, +9.3% YoY
and -29.4% QoQ. Asset quality continues to disappoint – slippages and gross NPL
increased 9.5% QoQ. Provision coverage (including write-offs) improved to 67%.
Focus on NIM improvement; asset quality yet to stabilise
NIM improvement is the key focus area for the bank. They have been prompt in
raising lending rates and are also benefiting from the repricing of high-cost
deposits raised in FY09. Management has guided for a loan growth of 16%-19%
for FY12 but indicated that fee income may remain muted as the emphasis is on
interest-yielding assets. In three out of the last four quarters the bank has reported
slippage in excess of 3%, and it might be a while before asset quality stabilises.
Agriculture (GNPL 7.2%) and SME (GNPL 4.2%) are key areas of concern.
P/BV-RoE valuation; wages a downside, provisioning could be an upside
We value SBI on the Gordon growth model using consolidated valuations and add
appraisal value of the life business. The key upside risk is a sharp decline in credit
costs and the key downside risk is operating costs increasing due to fresh
recruitment/pension costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Operating profit healthy, credit costs remain high; fairly valued
Increase in lending rates, high CASA ratio and repricing of high-cost term deposits
should help SBI deliver strong NIM. Fee income is likely to grow at a moderate
pace as focus is on interest-yielding business. Strong NIM, however, is being
offset by high credit costs as asset quality continues to be weak, especially
agriculture and SME loans. Management expects capital infusion from govt. in
FY12, however till then growth should be constrained by low Tier 1. The stock
trades at 1.5x FY12E P/B, ~7% premium to BoB. Maintain Hold.
1QFY12 results – strong NIM, weak asset quality
Net profit at INR 15.83bn, -45.7% YoY, was ~20% below consensus estimates.
NIM at 3.62%, +44bps YoY and +55bps QoQ, surprised possibly as the bank
benefited from recent increases in lending rates. Loan growth at 18% YoY was
less than the system growth. Fee income was weak at INR26.33bn, +9.3% YoY
and -29.4% QoQ. Asset quality continues to disappoint – slippages and gross NPL
increased 9.5% QoQ. Provision coverage (including write-offs) improved to 67%.
Focus on NIM improvement; asset quality yet to stabilise
NIM improvement is the key focus area for the bank. They have been prompt in
raising lending rates and are also benefiting from the repricing of high-cost
deposits raised in FY09. Management has guided for a loan growth of 16%-19%
for FY12 but indicated that fee income may remain muted as the emphasis is on
interest-yielding assets. In three out of the last four quarters the bank has reported
slippage in excess of 3%, and it might be a while before asset quality stabilises.
Agriculture (GNPL 7.2%) and SME (GNPL 4.2%) are key areas of concern.
P/BV-RoE valuation; wages a downside, provisioning could be an upside
We value SBI on the Gordon growth model using consolidated valuations and add
appraisal value of the life business. The key upside risk is a sharp decline in credit
costs and the key downside risk is operating costs increasing due to fresh
recruitment/pension costs.
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