State Bank of India - 4QFY2012 Result Update - Reliance Securities

NII supports growth; slippages halved sequentially

Key highlights of the result

- Net Profit growth supported by steady NII & lower provisions: State Bank of India's (SBI) Standalone Net Interest Income (NII) grew 43.8% yoy and 0.6% qoq to Rs11,591cr in 4QFY2012, mainly due to the shedding of high cost deposits & robust margins. Non-interest income increased 11.7% yoy and 159.4% qoq to Rs5,377cr. Operating expenses increased 8.5% yoy and 16.4% qoq to Rs7,371cr. Provisions declined 24.5% yoy, whereas, it increased 30.4% qoq to Rs3,140cr. Overall, the bank reported a Standalone Net Profit growth of 24.1% qoq to Rs4,050cr in 4QFY2012. However, the Net Profit yoy is not comparable due to high pension and provisioning costs in 4QFY2011.

- Balance sheet growth average, Tier 1 increases: Total loan book grew 15.8% yoy and 2.8% qoq to Rs8.9 lakh crore supported by Agri, SME & Retail book. We have factored 16% loan growth for FY2013E & FY2014E each. Total CAR increased to 13.9% led by improvement in Tier 1 to 9.8% (improved 202bp sequentially) as on March 31, 2011. Total deposits of the bank grew 11.7% yoy and 4.3% qoq to Rs10.4 lakh crore. NIMs rose 82bp yoy and it declined 16bp qoq to ~3.9% in 4QFY2012.

- Asset quality improves sequentially: In 4QFY2012, GNPAs were reported at 4.4% as compared to 4.6% sequentially, whereas, NNPAs were reported at 1.8% as compared to 2.2% sequentially. GNPAs in absolute terms witnessed a decline of 1.1% qoq to Rs39,676cr and NNPAs declined 15.9% qoq to Rs15,819cr as on 4QFY2012. We have factored in 4.5% GNPA for FY2013E and 4.3% for FY2014E.

- Other highlights: Government of India (Promoter) infused capital of ~Rs8,000cr via preferential issue of shares, enabling the Tier 1 to increase to ~9.8% in FY2012. SBI added 325 branches to its network taking the total to 14,097 branch network as of 31 March 2012.

Outlook and Valuation

SBI reported better than expected 4QFY2012 numbers on the operational front as well as it improved its asset quality sequentially. The bank's management expects better recoveries and stable asset quality going forward. However, given the current challenging economic environment, we have factored in the current run-rate of slippages, while rolling over our valuation to FY2014 estimates.

At the CMP of Rs2,014, the stock is trading at 1.2x its FY2014E standalone ABV (after adjusting for its associate banks & non-banking subsidiaries). We recommend a Buy on SBI (based on SOTP methodology) with a target price of Rs2,531.

Risks to the view

- Government's gridlock on economic reforms and a rising fiscal deficit have raised concerns about India's overall economic growth in the medium term. Therefore, macro-economic concerns hold downside risk to our growth estimates.

- The slowdown in the economy, rise in slippages and slowdown in recoveries pose downside risks to our estimates.

Source : Equity Bulls

Keywords