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Research
State Bank of India - All Round Weakness - Morgan Stanley
Posted On : 2011-05-18 10:42:48( TIMEZONE : IST )
What's Changed
Price Target Rs2,450 to Rs2,000
SBI announced weak numbers for F4Q11; PBT miss 58%: The lower results were driven by sharp NIM contraction during the quarter (38bp QoQ) and large provisions. Moreover, the bank took a Rs80bn hit through book value toward pension catch up. This brought tier 1 ratio to 7.8% (second-lowest across our Asian coverage universe).
There may have been some "kitchen sink" elements: The slippage rate spiked to 3.1% of loans in 4Q from 2.3% last quarter. This looks very high to us, and we are being conservative and not changing our underlying LLP estimates at this time. We are, however, building in a Rs15bn hit to reflect the change in RBI regulations. However, if rates remain at current levels (lending rates are the highest in 10 years) and the economy slows, then credit costs could rise sharply (especially given the large unseasoned infrastructure loan book).
Underlying progression was weak: We look at Core PPoP as the key stock driver. This missed our estimate by a significant 12%. We expect NIMs to continue to taper off toward 2.8% as deposits reprice upward and incremental LD ratio continues to decline. In our view, the stock is unlikely to perform when NIMs are falling. We expect core PPoP growth in the low single digits in F2012.
Weak underlying progression; weaker capital base and valuations (9.9x F2012e Core P/E and 1.5x Core BV) prompt us to stay UW: Our new EPS 2012E is 3% lower as we reduce pension costs (already reflected in lower book). Our new PT implies about 17% downside
from current levels – at our price target the stock would trade at 8.1x F2012E core P/E and 1.3x core book. If the macro situation does not improve, the stock could trend toward our bear case value of Rs1,500.
The stock closed the day at Rs.2355.70, down by Rs.57.90 or 2.40%. The total traded quantity was 14.02 lakhs compared to 2 week average of 7.32 lakhs.
The stock hit an intraday high of Rs.2398 and low of Rs.2331.15.
