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UBS Investment Research
State Bank of India
S trong NIMs, Slippages remain high
Event:Q1 FY11 numbers better than expectations
SBI reported net profit of Rs 15.8 bn (decline of 45% y/y) lower than UBS-e of
Rs 18.4bn (Consensus at Rs 20.9bn) however quality of numbers was better than
expected with better NIMs, improved provisioning coverage ratio and asset quality
deterioration in line with estimates. Management continues to be confident of
maintaining NIMs of 3.5% in order to tackle high slippages being witnessed. Fee
income was muted, high investment depreciation & tax led to earnings miss.
Impact: We largely maintain our estimates
We tweak our earnings estimates for FY12 by +1% on back of higher NIM
estimates. We build in 20 bps increase in NIMs in FY12 in line with management
guidance, we also lower fee growth estimates to 10% in FY12 on back of weak
commissions and lower forex income.
Action: Buy, improving profitability
We maintain our positive view on SBI due to improving profitability as counter
cyclical provisions run off and management’s pricing discipline ensures stable
NIMs. While we prefer private banks over PSU banks given weakening asset
quality trends, SBI is our most preferred bank amongst PSUs. We expect 37% EPS
CAGR in FY11-13 & RoE to expand to 18% from 12.6% in FY11.
Valuation: Residual income based PT of Rs 2,900
Stock currently trades at 1.1x FY13E book and 6.3x FY13E earnings. We value
core banking business at 1.5x FY13E book and add Rs 265 value of non banking
subsidiaries to arrive at our price target.
State Bank of India
State Bank of India (SBI) is a public sector bank with the government of India
holding around 60% of the company. It has the largest network of branches
(11,472) and ATMs (8,548) in India. SBI also owns 75-100% stakes in six banks
that have significant regional focus. SBI and its associates/subsidiaries together
have a deposit base of Rs94bn and advances of Rs64bn. In addition, SBI has
several other subsidiaries, including SBI Life, SBI Mutual Fund Life, and SBI
Cards.
Statement of Risk
Key risk to our call remains stronger than expected economy which could lead
to lower NPA losses and therefore better than expected profitability. Favourable
decisions by the government like stake dilution etc could also lead to near term
price movement.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
State Bank of India
S trong NIMs, Slippages remain high
Event:Q1 FY11 numbers better than expectations
SBI reported net profit of Rs 15.8 bn (decline of 45% y/y) lower than UBS-e of
Rs 18.4bn (Consensus at Rs 20.9bn) however quality of numbers was better than
expected with better NIMs, improved provisioning coverage ratio and asset quality
deterioration in line with estimates. Management continues to be confident of
maintaining NIMs of 3.5% in order to tackle high slippages being witnessed. Fee
income was muted, high investment depreciation & tax led to earnings miss.
Impact: We largely maintain our estimates
We tweak our earnings estimates for FY12 by +1% on back of higher NIM
estimates. We build in 20 bps increase in NIMs in FY12 in line with management
guidance, we also lower fee growth estimates to 10% in FY12 on back of weak
commissions and lower forex income.
Action: Buy, improving profitability
We maintain our positive view on SBI due to improving profitability as counter
cyclical provisions run off and management’s pricing discipline ensures stable
NIMs. While we prefer private banks over PSU banks given weakening asset
quality trends, SBI is our most preferred bank amongst PSUs. We expect 37% EPS
CAGR in FY11-13 & RoE to expand to 18% from 12.6% in FY11.
Valuation: Residual income based PT of Rs 2,900
Stock currently trades at 1.1x FY13E book and 6.3x FY13E earnings. We value
core banking business at 1.5x FY13E book and add Rs 265 value of non banking
subsidiaries to arrive at our price target.
State Bank of India
State Bank of India (SBI) is a public sector bank with the government of India
holding around 60% of the company. It has the largest network of branches
(11,472) and ATMs (8,548) in India. SBI also owns 75-100% stakes in six banks
that have significant regional focus. SBI and its associates/subsidiaries together
have a deposit base of Rs94bn and advances of Rs64bn. In addition, SBI has
several other subsidiaries, including SBI Life, SBI Mutual Fund Life, and SBI
Cards.
Statement of Risk
Key risk to our call remains stronger than expected economy which could lead
to lower NPA losses and therefore better than expected profitability. Favourable
decisions by the government like stake dilution etc could also lead to near term
price movement.
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