SBBJ, an associate of SBI, has witnessed a solid growth story during the period FY2007-FY2012:
–Achieved about 2.1 times growth in its balance sheet and 2.3 times growth in total business;
–Adj. net profit increased about 2.1 times to Rs.652 crore;
SBI Associate Act has been passed by the Lok Sabha. Now SBI associate banks such as SBBJ will have greater autonomy with respect to rewarding bonus shares and higher dividends to shareholders which will help in creating significant wealth for the shareholders in the long term;
SBBJ is a good dividend paying bank - it paid a dividend of Rs.14.5/share for FY2012. We expect close to 4% dividend yield for FY2013;
In Q2FY2013, the bank posted impressive growth in the net profit by about 51% YoY to Rs.169 crore compared to Rs.112 crore in Q2FY2012. The NII (net interest income) of the bank grew by 42.2% YoY to Rs.679.38 crore compared to Rs.477.61 crore in corresponding quarter of last year. The PPP (pre-operating profit of the bank grew by 48% YoY during the same period. The bank’s asset quality showed considerable improvement with its net NPA% declining by 57bps yoy to 1.91% as on September 30, 2012. The total business of the bank grew by 14% YoY to Rs.115,073 crore as on September 30, 2012;
We believe that this is the ideal time to invest in SBBJ. The stock is currently trading 13% below its 52 week high of Rs.470 at 0.82x its Adj. BV of Rs.496 as on September 30, 2012 and at attractive valuation of 0.65x FY2014E Adj. Book Value of Rs.630. We recommend buy on this wealth creating banking stock of SBBJ, with a fair value of Rs.580, based on a conservative valuation of 0.9x FY2014E Adj. BV with expected return of 43%;
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