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State Bank of India Research Report - 21st Jan 2016

Banking | Published on Nov 07th 2015

IT

State Bank of India (SBI)s 2QFY2016 results have outperformed our as well as street expectations. The PAT for the bank grew 25.1% yoy to Rs3,879cr, led by healthy performance on all fronts. Slippages dip, NIM improves, qoq During 2QFY2016, the bank’s advances grew by 10.5% yoy, which is the highest growth rate amongst the previous 5 quarters. Consolidation continued in midcorporate and Agri, which posted a decline of 5.2% and 2.2% yoy, respectively. On the other hand, retail and large corporate continued to scale up with a growth of 16.8% yoy and 21.7% yoy, respectively. Deposits outpaced advances with a 10.9% yoy growth for the quarter, with retail term deposits growing at 12.6% yoy. The Global NIM increased marginally by 2bp qoq to 3.01% in 2QFY2016 which was mainly due to decline in the cost of funds; but yields witnessed a decline during the quarter. The non-interest income (excl. treasury) for the bank grew by 14.2% yoy, with fee income growth of 1.4% yoy. Asset quality showed signs of improvement with Gross and Net NPA ratios declining by 14bp and 10bp to 4.15% and 2.14% respectively. Fresh slippages came in at Rs5,875cr as against Rs7,318cr for 1QFY2016. Even restructuring of loan assets came lower at Rs2,450cr as against Rs3,936cr in the sequential previous quarter. The bank refinanced ~Rs4,000cr worth of loans under the 5/25 scheme and Rs400cr worth of assets were sold to ARCs, during the quarter. Further, it has guided for a refinacing pipeline of ~Rs6,600cr (8 loan accounts), going ahead. Outlook and valuation: SBI has been reporting stable numbers with respect to slippages and NPA ratios over the past several quarters as compared to its peers. With expectation of improvement in economic growth in the medium term, asset quality woes could further reduce, which in turn could lead to further improvement in return ratios. 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, the stock is currently trading at a moderate valuation of 0.9x FY2017E ABV (after adjusting Rs44/share towards value of subsidiaries) as compared to its peers. Hence, we recommend a BUY rating on the stock with a target price of Rs283.

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CMP 243
Target Price 283
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)206,489.87
MCAP NSE (Rs in Cr)206,994.45
P/E (x)57.58
EPS (Rs.)4.62
BV (Rs.)233.07
Div Yield (%)0.98
FV (Rs.)1.00
P/BV (x)0.96
EV/Sales (x)11.34
EV/EBITDA (x)22.36

Shareholding Pattern (%)

Promoter60.0
Institution19.0
Foreign13.0
Public & Others6.0
Corporate2.0
Grand Total100.0

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