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State Bank of India Research Report - 16th Feb 2016

Banking | Published on Feb 16th 2016

IT

For 3QFY2016, State Bank of India (SBI) reported a PAT of `1,115cr, which is in line with our expectation. Although the PAT declined by 61.7% yoy and 71.2% qoq, the performance can still be termed satisfactory given the cleaning up of NPAs taken up by the bank and with it having provided for higher provisions during the quarter. Higher provisions dented profits; NIM under pressure: The bank’s advances grew by a healthy 12.9% yoy while its deposits grew by 10.7% yoy during the quarter. The NII declined by 1.2% yoy due to interest reversal to the tune of `450cr on NPA recognition. The operating profit grew by a meager 3.3% yoy however, it declined by 7% qoq while provisions went up by 2x qoq, thereby leading the PAT to decline by 61.7% yoy and 71% qoq to `1,115cr. Asset quality deteriorated further, but cleaning up of balance sheet a positive move: Fresh slippages for the quarter came in at `20,692cr (slippage ratio of 6.2%) as against `5,875cr in 2QFY2016. Slippages from AQR related accounts were at `14,800cr (70% of these were accounted by 3 accounts in the steel and textile sectors) while `5,000cr of slippages were from the restructured book. SBI has not recognized all of the AQR accounts as NPAs; hence, an equal amount of slippages can be expected in 4QFY2016 as well. The Gross NPA ratio went up to 5.10% vs 4.15% in 2QFY2016 and the Net NPA ratio went up to 2.89% from 2.14% in the sequential previous quarter. The bank refinanced ~ `8,400cr worth of loans under the 5/25 scheme with ~`4,000cr of loans further in the pipeline. The outstanding standard 5/25 balance stood at `10,900cr. SBI implemented SDR worth `7,700cr during the quarter. Total stressed assets (GNPAs+Resturectured+SDR+5/25) accounted for 12.6% of the loan book. Outlook and valuation: The current quarter’s results for SBI were disappointing due to a sharp rise in provisions and higher NPA recognition. However, we believe SBI is well placed compared to other PSU banks with regards to stressed assets. In our view, the stock is currently trading at a moderate valuation of 0.6x FY2017E ABV (after adjusting `33/share towards value of subsidiaries) as compared to its peers. Though stress is likely to persist in the banking system, SBI is better positioned to meet the challenges, given its decent capital adequacy of 12.45%. Hence, we recommend an ACCUMULATE on the stock.

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CMP 156
Target Price 177
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)201,172.37
MCAP NSE (Rs in Cr)201,133.55
P/E (x)56.10
EPS (Rs.)4.62
BV (Rs.)233.07
Div Yield (%)1.00
FV (Rs.)1.00
P/BV (x)0.94
EV/Sales (x)11.31
EV/EBITDA (x)22.31

Shareholding Pattern (%)

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

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