Buy SBI - Motilal Oswal

State Bank of India (SBIN IN; Mkt Cap USD35.9b, CMP Rs2,598, Buy)

Margins have improved 18bp QoQ and 79bp YoY to 3.61%, led by a sequential drop in cost of deposits (13bp).

Operating expenses increased 11% YoY (down 3% QoQ), 13% lower than our estimate. In absolute terms, GNPA remained flat QoQ at Rs234b. PCR including technical write-offs increased to 64% (v/s 62.8% in 2QFY11).

The management said that SBI's special home loan scheme does not classify as teaser rate loan.

The stock trades at 1.5x FY12E and 1.3x FY13E consolidated BV. We expect RoA to improve from 0.9% in FY10 to ~1% in FY11 and ~1.1% in FY12-13. RoE is likely to improve from 15% in FY10 to 18-19% by FY13 (without assuming capital raising). Maintain Buy.

Source : Equity Bulls

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