State Bank of India - 4QFY2012 Result Update - Angel Broking

During 4QFY2012, SBI's reported standalone net profit of Rs.4,050cr as against Rs.21cr in 4QFY2011, which was ahead of ours as well as street estimates. Sign of improvement witnessed on the asset quality front, with decline in both gross and net NPA ratios on sequentially lower slippages, was the key positive from the result. We recommend a Buy on the stock with a target price of Rs.2,486.

NIM decline by 16bp qoq; NPA ratios improves sequentially on reduced slippages: During 4QFY2012, the bank's net advances grew by 14.7% yoy driven by healthy growth in segments such as International, Agricultural and SME. Overall deposits accretion remained moderate, registering a growth of 11.7% yoy. The reported domestic CASA ratio stood at 46.6% (47.9% in 3QFY2012 and 49.8% in 4QFY2011). The bank's NIM contracted for both domestic (down by 11bp qoq to 4.28%) and foreign operations (down by 24bp qoq to 1.53%). Consequently, overall NIMs for the bank contracted by 16bp to 3.89%. The banks' non-interest income (excl. treasury) grew strongly by 18.1% yoy mainly on account of healthy 13.0% yoy growth in fee income. On the asset-quality front, the bank's annualized slippage ratio for the quarter came at 2.3%, significantly lower than 4.3% in 3QFY2012 and 4.2% in 2QFY2012. The NPA ratios improved sequentially with both gross and net NPA levels decreasing on an absolute basis by 1.1% and 15.9%, respectively. The PCR (incl. technical write-offs) also improved by 558bp qoq to 68.1%. The bank restructured accounts worth Rs.5,134cr during 4QFY2012, which included Air India's Rs.1,215cr, thereby taking its total restructured book to Rs.42,744cr. The slippages from the restructured book during 4QFY2012 stood at Rs.1,361cr.

Outlook and valuation: At the CMP, the stock is trading at 1.2x FY2014E ABV (adjusting for value of subsidiaries 1.1x FY2014E ABV) vis-à-vis its historic range of 1.3-2.3x and median of 1.7x. Also, considering the bank's dominant position and reach, high fee income, superior earnings quality and recent signs of improvement in asset quality, we recommend a Buy on the stock with a target price of Rs.2,486.