SBI - 1QFY2013 Result Update - Motilal Oswal

State Bank of India's (SBIN) 1QFY13 PAT stood at INR37.5b (4 % above our est. of INR36.1b). While operating profit was 7% below est., write-back of provisions on investment (INR5.2b) and foreign currency translation gain (INR1.1b) on foreign operations led to higher than expected PAT. Key highlights:

- Asset quality surprised negatively with gross slippages of INR108.4b (highest ever in any quarter), however reduction in standard restructured loan portfolio (now at 3.2% of overall loans - lowest among peers) led to net addition to stressed assets of INR59.4b v/s INR47.5b a quarter ago and INR64.5b in 3QFY12.

- Corporate and SME segment contributed 33% and 28% of incremental slippages in 1QFY13 respectively. Slippages in retail segment was high (slippage ratio of 3.3%+), contrary to the trend witnessed in the industry.

- Domestic margins declined sharply by 42bp QoQ to 3.86% led by higher interest income reversal and reduction in lending rates in SME and retail segment.

- Gross loans grew 6% QoQ and 20% YoY to INR9.5t, however this was partially helped by strong growth in overseas operations (+21% QoQ and 48% YoY; helped by rupee depreciation).

Valuation and view: Continued higher stress in the macroeconomic environment, management's policy of recognising the stress upfront than restructuring may lead to higher deterioration in asset quality. Pressure on NIM is likely to continue led by fall in lending rates. Absence of one off provisioning (INR25b) and higher base of MTM provisions (INR7b) will provide strong cushion to earnings in FY13. Maintain Buy.

Source : Equity Bulls

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