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State Bank of India
Weak Asset Quality Offsets
Stronger NIMs. UW.
What's Changed
Price Target Rs2,000 to Rs1,850
% EPS Change F12e/F13e -13.2%/-7.7%
Cutting estimates, maintain UW. NIM rise seems
unsustainable, given pressure seen at other SOE
banks. Plus, lower fees and higher costs are offsetting
higher NIMs, implying in-line pre-provision. Asset
quality is still an outlier; amid elevated rates/slowing
growth, we see further deterioration.
NIM beat but lower non-interest income and higher
costs: SBI reported 3.6% NIM in F1Q12, up 29 bps
QoQ (other SOE banks had averaged ~33 bps down).
SBI may be repricing assets more aggressively than
others, plus the impact of deposit repricing is more
lagged than others. The interesting thing was that
despite the 29 bps NIM beat, core pre-provision was in
line with our estimates, driven by lower fees and higher
costs (the latter driving our estimate cuts).
Asset quality to become a bigger concern: The bank
has aggressively revised lending rates. The last time
PLR was at current levels was in 1997 and if we look at
risk spreads (PLR – 10-year bonds), it’s the highest
since 1994. Slowing growth with such elevated rates is
likely to hurt. We saw evidence of this in F1Q12 earnings
– where new NPL formation was 3.3% of loans (3.1% in
F4Q11). SME NPL formation was 6.5% and this will
come under further pressure amid the current economic
backdrop. We also expect infrastructure to become a
bigger concern. The first negative signposts would be
restructuring of some loans.
We see better value elsewhere: On valuations, SBI
stock is at mid-cycle averages, but across Asia we see
stocks trading at lower multiples and with better
fundamental outlook and capital position. In India, we
like private sector banks more – especially HDFC Bank
and Yes Bank.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
Weak Asset Quality Offsets
Stronger NIMs. UW.
What's Changed
Price Target Rs2,000 to Rs1,850
% EPS Change F12e/F13e -13.2%/-7.7%
Cutting estimates, maintain UW. NIM rise seems
unsustainable, given pressure seen at other SOE
banks. Plus, lower fees and higher costs are offsetting
higher NIMs, implying in-line pre-provision. Asset
quality is still an outlier; amid elevated rates/slowing
growth, we see further deterioration.
NIM beat but lower non-interest income and higher
costs: SBI reported 3.6% NIM in F1Q12, up 29 bps
QoQ (other SOE banks had averaged ~33 bps down).
SBI may be repricing assets more aggressively than
others, plus the impact of deposit repricing is more
lagged than others. The interesting thing was that
despite the 29 bps NIM beat, core pre-provision was in
line with our estimates, driven by lower fees and higher
costs (the latter driving our estimate cuts).
Asset quality to become a bigger concern: The bank
has aggressively revised lending rates. The last time
PLR was at current levels was in 1997 and if we look at
risk spreads (PLR – 10-year bonds), it’s the highest
since 1994. Slowing growth with such elevated rates is
likely to hurt. We saw evidence of this in F1Q12 earnings
– where new NPL formation was 3.3% of loans (3.1% in
F4Q11). SME NPL formation was 6.5% and this will
come under further pressure amid the current economic
backdrop. We also expect infrastructure to become a
bigger concern. The first negative signposts would be
restructuring of some loans.
We see better value elsewhere: On valuations, SBI
stock is at mid-cycle averages, but across Asia we see
stocks trading at lower multiples and with better
fundamental outlook and capital position. In India, we
like private sector banks more – especially HDFC Bank
and Yes Bank.
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