SBI – GOI to infuse Rs30-45bn and SBI may not offer a rights issue ::RBS

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According to press reports, Financial Services Secretary D K Mittal has said that GOI will
infuse Rs30-45bn in SBI in FY12. Further, the reports suggest SBI may not be going for a
public or rights issue.
Impact analysis
In general, a capital infusion by the GOI (government of India) is done on a preferential
basis. The preferential issue is priced at higher of average price for the last six months or
two weeks preceding the relevant date. As of today, these are Rs2,271 and Rs1,834
respectively.
Assuming the GOI infuses Rs45bn at the current price, the total dilution will be about 4%.
Assuming dilution at the current market price, the FY12F book value (standalone) will
increase by Rs25. Similarly, a dilution at Rs2,271, the BV will increase by Rs33 (see
table below)
If SBI opts not to go ahead with the right issue, we believe it will be a negative
development for SBI existing shareholders as they get diluted.
SBI (including associate banks) trades at 1.2x FY12F book value and 6.8x FY12F earnings.
We have a Buy rating on SBI.