Recommendations » India

State Bank of India 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, SBI’s standalone net profit increased by 15.4% yoy to Rs.3,263cr, which were above street estimates. Sequential expansion in both domestic (32bp) and foreign NIM (4bp) was the major positive from the result. However, the asset quality continued to disappoint with gross and net NPA levels increasing sequentially by 18.1% and 16.6%, respectively. We recommend an Accumulate on the stock with a target price of Rs.2,595.

NIM improve further; asset quality continues to disappoint: During 3QFY2012, the bank’s net advances grew by 16.5% yoy (up 7.0% qoq), while deposits accretion was moderate at 13.9% yoy (up 2.9% qoq). The reported CASA ratio as of 3QFY2012 stood at 47.9% (47.8% in 2QFY2012 and 48.2% in 3QFY2011). The bank’s NIM increased for both domestic (up by a strong 32bp qoq to 4.4%) and foreign operations (up by 4bp qoq to 1.8%) on account of better yields. Adjusting for net loss on investments of Rs.221cr, non-interest income declined by 9.6% yoy. On the asset-quality front, the bank’s annualised slippage ratio for the quarter remained above 4%+ levels (4.3%). Pressure on slippages was high from the agri, SME as well as corporate segment, while major industries contributing to higher slippages were aviation (Rs.1,184cr), iron and steel (Rs.667cr vs. Rs.347cr in 2QFY2012) and textiles (Rs.462cr vs. Rs.289cr in 2QFY2012).

Outlook and valuation: At the CMP, the stock is trading at 1.6x FY2013E ABV (adjusting for value of subsidiaries). The bank’s asset quality has been under stress lately, however the pressures are expected to ease off going forward as domestic macro headwinds subside. Also, considering the bank’s dominant position and reach, strong savings market share gains, high fee income and superior earnings quality, and recent impressive performances on margin front, we recommend an Accumulate on the stock with a target price of Rs.2,595.