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Recommendations India

State Bank of India 1QFY2015 performance highlights and results update

August 14, 2014, Thursday, 19:43 GMT | 15:43 EST | 00:13 IST | 02:43 SGT
Contributed by Angel Broking

State Bank of India (SBI) reported a good set of numbers for 1QFY2015 with a 15.1% yoy growth in net interest income and stable asset quality. Slippages came down from Rs.13,766cr (annualized ratio of 5.2%) in 1QFY2014 to Rs.9,932cr (annualized ratio of 3.3%) in 1QFY2015. A de-growth in other income was offset by lower opex and as a result, pre-provision profits grew by 16.4% yoy.

Business growth steady; Domestic margins increase by 10bp yoy: During 1QFY2015, the bank’s advances grew by 13.0% yoy, primarily aided by strong loan book growth in international and large corporate advances which grew by 20.2% and 33.8% yoy respectively, while deposits grew by 12.9% yoy. An increase in the cost of deposits was offset by increase in yield in advances. As a result, the domestic net interest margin improved by 10bp yoy to 3.5% in 1QFY2015. CASA deposits increased by 9.8% yoy, aided by a 11.6% yoy growth in saving deposits, while current deposits remained largely flat yoy. Non-interest income (excl. treasury) for the bank grew by 12% yoy with an increase in fee income and forex gains by 10.9% and 28.9% yoy respectively. On the asset quality front, slippages came down from Rs.13,766cr (annualized ratio of 5.2%) in 1QFY2014 to Rs.9,932cr (annualized ratio of 3.3%) in 1QFY2015. Also write offs for the quarter came much higher at Rs.6,556cr as against Rs.1,148cr in 1QFY2014. The Gross and Net NPA ratios during the quarter came lower by 66bp and 17bp yoy respectively to 4.9% and 2.7%. The PCR for the bank increased by 208bp yoy to 62.7%. Restructuring during the quarter came in sequentially lower at Rs.5,702cr as against Rs.7,636cr in 4QFY2014. Going ahead the restructuring pipeline stands at Rs.3,500cr.

Outlook and valuation: Asset quality for SBI has been improving since the last two quarters. Optimism in the market on economic growth would reduce asset quality woes, which is expected to improve return ratios. The Management has guided for a loan growth of 15% for FY2015 and we believe the same is very much achievable considering the capital base. 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 1.03x FY2016E ABV, after adjusting for subsidiaries, factors in the positives for the bank. We recommend a Buy rating on the stock.