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SBI 4QFY2014 performance highlights and results update

May 28, 2014, Wednesday, 11:01 GMT | 06:01 EST | 14:31 IST | 17:01 SGT
Contributed by Angel Broking

SBI reported healthy performance on the asset quality front while operating performance came ahead of our estimates. Slippages for the bank came lower than expectation at Rs.7,947cr (annualised slippage rate of 3.0%) as against Rs.11,438cr in 3QFY2014 (annualised slippage rate of 4.4%). Recoveries and upgrades came much higher at around Rs.8,443cr against Rs.2,768cr in 3QFY2014. On the operating front, NII grew by 16.5% yoy (aided by 15.7% growth in advances). The opex remained largely flat yoy. PPOP increased by 36.9% yoy. But higher provisioning expenses (up 40.9% yoy; NPA provision increased by 48.1% yoy) coupled with higher tax expense at Rs.1,696cr against Rs.280cr in 4QFY2013 resulted in earnings de-growth by 7.8% yoy to Rs.3,041cr.

Business growth healthy; Domestic margins flat qoq: During 4QFY2014, the bank’s advances grew healthy at 15.7% yoy, primarily aided by strong loan book growth in international and large corporate advances which grew by 26.8% and 38.0% yoy respectively, while deposits also grew healthy at 15.9% yoy. CASA deposits increased by 10.4% yoy, aided by 13.1% yoy growth in saving deposits, while current deposits remained largely flat yoy. Domestic NIM remained flat qoq at 3.49%. Non-interest income (excl. treasury) for the bank witnessed a healthy performance, with a 16.3% yoy increase to Rs.6,185cr, aided by fee income and forex gains. On the asset quality front bank reported a healthy performance as slippages came much lower than expectation at Rs.7,947cr (annualised slippage rate of 3.0%) as against Rs.11,438cr in 3QFY2014 (annualised slippage rate of 4.4%). Also recoveries and upgrades for the quarter came much higher at Rs.8,443cr as against Rs.2,768cr in 3QFY2014. Sale of assets to ARCs stood at Rs.3,590cr. The Gross and Net NPA ratios during the quarter came lower by 78bp and 67bp qoq respectively to 5.0% and 2.6%. The PCR for the bank increased by 454bp qoq (372bp yoy decline) to 62.9%. Restructuring during the quarter came in sequentially higher at Rs.7,636cr as against Rs.6,165cr in 3QFY2014. Going ahead the restructuring pipeline stands at Rs.3,700cr.

Outlook and valuation: The bank has witnessed elevated asset quality pressure for quite some time (though moderation during 4QFY2014). The bank’s core strength has been its high CASA and fee income, which has supported its core profitability in challenging times. Its strong capital adequacy also provides comfort. In our view, its current valuation of 1.3x FY2016E ABV, after adjusting for subsidiaries, factors in the positives for the bank. We recommend a Neutral rating on the stock.