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State Bank of India 2QFY2013 performance highlights and results update

Contributed by Angel Broking

During 2QFY2013, State Bank of India (SBI) reported a 30.2% yoy growth in its standalone net profit to Rs.3,658cr, which was in-line with our estimates. The operating level performance was largely subdued, as pre-provisioning profit declined by 1.6% yoy. Slippages came in at elevated levels of 3.3%, which we had anticipated.

Slippages remain at elevated levels: During 2QFY2013, the bank’s advances grew by 17.2% yoy, while deposits registered a growth of 16.5% yoy. The domestic saving deposits growth was moderate at 12.5% yoy, while domestic current account deposits declined by 3.6% yoy. As per the management, the domestic NIMs were lower on account of a 6bp sequentially higher cost of deposits and healthy deposits accretion in anticipation of strong credit growth (which was not witnessed). On the non-interest income (excluding treasury) front, the bank witnessed an 8.3% yoy decline, largely on the back of lower CEB income. On the asset-quality front, the bank’s annualized slippage ratio for the quarter remained elevated at 3.3% though lower than 5.0% in 1QFY2013 and 4.2% in 2QFY2012. Almost 77% of the incremental slippages were witnessed in the mid-corporate and SME segments. On a sequential basis, gross and net NPA levels were higher by 4.3% and 11.3%, respectively. PCR also deteriorated by 151bp qoq to 62.8%. Additionally, the bank restructured advances worth Rs.4,694cr during the quarter, thereby taking its total outstanding restructured book to Rs.40,454cr, out of which Rs.32,796cr are standard restructured advances.

Outlook and valuation: The asset quality of the bank has been witnessing pressure for quite some time now and with the slowdown in economic growth and persistent inflation levels pointing towards further economic stress, cyclically, the next couple of quarters are also likely to be challenging for the bank. However, at the current market price, the stock is trading at 1.4x FY2014E ABV (adjusting for value of subsidiaries 1.2x FY2014E ABV) vis-à-vis its historic range of 1.3–2.3x and median of 1.6x. Also, considering the bank’s dominant position and reach, high fee income and superior earnings quality, we recommend an Accumulate rating on the stock with a target price of Rs.2,437.