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Strong margin story: SBI’s margin story is expected to remain strong, with some
more favourable re-pricing left on dual rate home loans, though 1000 day
deposit benefits have mostly been accrued and this would help offset near term
fee income pressure. Savings deregulation would pressure cost of funds, but we
do not expect large banks to raise rates indiscriminately and hence margin
impact would be limited.
Asset quality – Worst over but some more pain to come, Low power and
airline exposure a big positive: We believe worst in terms of slippages (>4%
annualized in Q2FY12) is behind us but we do expect asset quality pain to
remain the next two quarters, especially SMEs, and hence, management’s
guidance on 1.7% net NPAs looks optimistic. Power is a sector wide concern but
relatively lower power exposure, very low discom funding and large exposure
to marquee names reduces overall risk from power exposure.
Valuations very attractive – ROA dip not as bad as some peers: Our Sep-12 PT
of Rs2200/share based on two-stage Gordon growth model implies 18% upside
from current levels. We believe return ratios resilience will be relatively better
for SBI with ROAs expected to bounce back to >1.0% by FY13, driven by strong
top-line performance which would not be the case with BOI/Union.
Negatives getting priced in; Buy: We believe that the overall macro would
remain challenging over the next 1-2 quarters, including asset quality. However,
market is ignoring low power/airlines related risks for SBI. Valuations is getting
attractive with the recent correction with SBI trading ~1x FY13 book. Possible
news flow on capital infusion and an easing monetary policy stance, including
CRR cut, would be potential upside catalysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong margin story: SBI’s margin story is expected to remain strong, with some
more favourable re-pricing left on dual rate home loans, though 1000 day
deposit benefits have mostly been accrued and this would help offset near term
fee income pressure. Savings deregulation would pressure cost of funds, but we
do not expect large banks to raise rates indiscriminately and hence margin
impact would be limited.
Asset quality – Worst over but some more pain to come, Low power and
airline exposure a big positive: We believe worst in terms of slippages (>4%
annualized in Q2FY12) is behind us but we do expect asset quality pain to
remain the next two quarters, especially SMEs, and hence, management’s
guidance on 1.7% net NPAs looks optimistic. Power is a sector wide concern but
relatively lower power exposure, very low discom funding and large exposure
to marquee names reduces overall risk from power exposure.
Valuations very attractive – ROA dip not as bad as some peers: Our Sep-12 PT
of Rs2200/share based on two-stage Gordon growth model implies 18% upside
from current levels. We believe return ratios resilience will be relatively better
for SBI with ROAs expected to bounce back to >1.0% by FY13, driven by strong
top-line performance which would not be the case with BOI/Union.
Negatives getting priced in; Buy: We believe that the overall macro would
remain challenging over the next 1-2 quarters, including asset quality. However,
market is ignoring low power/airlines related risks for SBI. Valuations is getting
attractive with the recent correction with SBI trading ~1x FY13 book. Possible
news flow on capital infusion and an easing monetary policy stance, including
CRR cut, would be potential upside catalysts.
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