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Q4FY12 result highlights
Quarterly performance: State Bank of India (SBI) reported PAT of Rs40.5bn (vs. Rs209m in Q4FY11; up 24% qoq), in line
with our estimate. While the bottom-line was strong, the quality of earnings was robust due to a decline in fresh
delinquencies, a 17bp qoq drop in gross NPA ratio (a decline of Rs4.2bn in absolute terms), lower NPA provisions, and also
a rise in coverage ratio. At Rs116bn (up 44% yoy), NII was lower than our estimate of Rs122bn on the back of a ~15bp qoq
decline in margins and sluggish loan growth.
Key positives: Notably, slippages came in lower than in the previous quarters (Rs43.8bn; annualized 2% of advances),
leading to a decline in NPA provisions made by the bank. The SME and agriculture segments saw a decline in slippages,
while retail remained resilient. As a result, provisions came in lower, at Rs31.4bn (vs Rs42bn in Q4FY11). NPA provisions
came off to Rs28.4bn from Rs30bn in Q3 and Rs32.6bn in Q4FY11. Despite the lower provisions, the coverage ratio
(including write-offs) increased by 560bp qoq to 68.1%. Incremental restructuring stood at Rs51bn (0.6% of loans; lower
than peers), with the outstanding restructured portfolio increasing to Rs372bn (4.2% of loans).
Key negatives: Reported NIMs contracted by ~15bp qoq to 3.9%. Advances growth was sluggish at 3% qoq and 15% yoy.
Impact on financials
With the bank’s strong focus on asset quality and profitability, we expect core performance to sustain its momentum.
Drawing comfort from the past aggressive NPA recognition and comfortable provision coverage ratio, we expect
provisioning costs to taper off gradually over next 12 months. We introduce our FY14 earnings estimates and expect the
bank to deliver a robust 25% CAGR in earnings over FY12-14, with RoA expanding to 1.1% from 0.9% in FY12.
Valuations & view
Affected by persistent asset quality pressures, the stock has corrected by 18% over past 12 months. However, we expect a
gradual alleviation of asset-quality concerns and a turn in the interest rate cycle to drive stock performance over the next 12
months. In light of this, we reiterate our bullish stance on the stock, with a current valuation of 1.1x FY13E P/BV and 12-
month price target of Rs3,000 (corresponding to 1.6x FY13E adjusted book; including Rs188 value for subsidiaries).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q4FY12 result highlights
Quarterly performance: State Bank of India (SBI) reported PAT of Rs40.5bn (vs. Rs209m in Q4FY11; up 24% qoq), in line
with our estimate. While the bottom-line was strong, the quality of earnings was robust due to a decline in fresh
delinquencies, a 17bp qoq drop in gross NPA ratio (a decline of Rs4.2bn in absolute terms), lower NPA provisions, and also
a rise in coverage ratio. At Rs116bn (up 44% yoy), NII was lower than our estimate of Rs122bn on the back of a ~15bp qoq
decline in margins and sluggish loan growth.
Key positives: Notably, slippages came in lower than in the previous quarters (Rs43.8bn; annualized 2% of advances),
leading to a decline in NPA provisions made by the bank. The SME and agriculture segments saw a decline in slippages,
while retail remained resilient. As a result, provisions came in lower, at Rs31.4bn (vs Rs42bn in Q4FY11). NPA provisions
came off to Rs28.4bn from Rs30bn in Q3 and Rs32.6bn in Q4FY11. Despite the lower provisions, the coverage ratio
(including write-offs) increased by 560bp qoq to 68.1%. Incremental restructuring stood at Rs51bn (0.6% of loans; lower
than peers), with the outstanding restructured portfolio increasing to Rs372bn (4.2% of loans).
Key negatives: Reported NIMs contracted by ~15bp qoq to 3.9%. Advances growth was sluggish at 3% qoq and 15% yoy.
Impact on financials
With the bank’s strong focus on asset quality and profitability, we expect core performance to sustain its momentum.
Drawing comfort from the past aggressive NPA recognition and comfortable provision coverage ratio, we expect
provisioning costs to taper off gradually over next 12 months. We introduce our FY14 earnings estimates and expect the
bank to deliver a robust 25% CAGR in earnings over FY12-14, with RoA expanding to 1.1% from 0.9% in FY12.
Valuations & view
Affected by persistent asset quality pressures, the stock has corrected by 18% over past 12 months. However, we expect a
gradual alleviation of asset-quality concerns and a turn in the interest rate cycle to drive stock performance over the next 12
months. In light of this, we reiterate our bullish stance on the stock, with a current valuation of 1.1x FY13E P/BV and 12-
month price target of Rs3,000 (corresponding to 1.6x FY13E adjusted book; including Rs188 value for subsidiaries).
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