SBI - Asset quality under severe stress - Karvy

SBI has reported way higher slippages of 4.7% during the quarter. It has surpassed even its earlier trend of higher slippages of 3-4% in a quarter. Despite sequential NIMs compression of 32bps NII is line with expectations backed by higher credit growth of 19% during the quarter. PAT was slightly above expectations on account of reversal of investment depreciation of Rs5.2bn and lower NPL provisions.

- Sharp deterioration in asset quality: Asset quality has deteriorated sharply with slippages of 4.7% during the quarter. Slippages during the quarter are granular and spread across sectors. GNPA increased by 55bps sequentially to 5.0%. Lower than anticipated provisions has pulled down provision coverage by 380bps sequentially to 64.3% Outstanding restructuring book remains flat at 4% of loan book.

- Higher growth in balance sheet: Post recapitalization of bank, it has started growing its balance sheet at a rate higher than industry. Advances grew by 19%, whereas, deposits managed 16%. Overseas and large corporate segment contributed to most of the incremental growth. Overseas advances grew by 48% also on account of rupee depreciation and lower base. In line with industry trend, CASA has shown a sequential dip of 90bps to 43%.

- Sharp compression in NIMs: NIMs have contracted by 32bps sequentially and 5bps as against last year to 3.6%. Management has guided full year NIMs of 3.75%.

Outlook & Valuation

At the CMP, the stock trades at 8.0x and 6.1x earnings, and at 1.7x and 1.4x P/ABV FY13E and FY14E respectively. Stripping out value for subsidiaries, it is trading at 4.3x P/E FY14E and 1.0 P/ABV FY14E. We have cut our earning estimate by 8% for FY13E and 4% for FY14E. We continue to maintain our HOLD rating with a price target of Rs2,075 per share. We value it on SOTP basis on P/ABV of 1.1x FY14E for the parent and Rs560 for subsidiaries.

Source : Equity Bulls

Keywords