Please refer to important disclosures at the end of this report 1 Particulars (Rs cr) 1QFY11 4QFY10 % chg (qoq) 1QFY10 % chg (yoy) NII 7,304 6,721 8.7 5,025 45.4 Pre-Prov Profit 6,134 5,194 18.1 3,674 67.0 PAT 2,914 1,867 56.1 2,330 25.1 Source: Company, Angel Research For 1QFY2011, State Bank of India’s (SBI) standalone net profit grew 25.1% yoy and 56.1% qoq, which exceeded our estimates on account of better-than- estimated NII and lower operating expenses. Robust operating performance with reasonable asset quality was the key highlight of the result. We maintain an Accumulate rating on the stock. Robust operating performance: The bank’s net advances increased 20.4% yoy and 3.4% qoq to Rs6,53,220cr, while total deposits grew 6.8% yoy and 1.4% qoq to Rs8,15,297cr during 1QFY2011. Reported net interest margin (NIM) improved by 22bp qoq and 88bp yoy to 3.18% during the quarter despite a hit of 12bp due to change in the method of calculation of SA interest. The margin expansion was underpinned by improvement in the CASA ratio to 47.5% as of 1QFY2011 from 38.5% as of 1QFY2010 and from 46.7% as of 4QFY2010 coupled with shedding of high-cost bulk deposits. Gross NPAs were up by 6.6% qoq and net NPAs increased 1.9% qoq to Rs20,825cr and Rs11,074cr, respectively. NPA provision coverage ratio including technical write-offs improved to 60.7% compared to 59.2% as of 4QFY2010. Outlook and Valuation: Due to strong CASA and fee income, SBI’s core RoEs have improved over the past few years and unlike virtually all other PSBs, actual FY2010 RoEs are below core levels due to low asset yields, providing scope for upside as the CD ratio improves and yields normalise to sectoral averages. SBI is trading at 2.1x FY2012E ABV while excluding value of insurance and capital market subsidiaries, it is trading at 1.7x FY2012E ABV v/s its 5-year range of 1.3-2.0x and median of 1.7x. We believe this provides reasonable upside, especially in light of its dominant position and reach, strong growth and superior earnings quality. We maintain an Accumulate on the stock, with a Target Price of Rs3,185. Key Financials Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E NII 20,873 23,671 30,834 37,558 % chg 22.6 13.4 30.3 21.8 Net Profit 9,332 9,398 10,771 15,042 % chg 38.7 0.7 14.6 39.6 NIM (%) 2.6 2.5 2.8 2.9 EPS (Rs) 147.0 148.0 169.7 236.9 P/E (x) 18.9 18.8 16.4 11.8 P/ABV (x) 3.4 2.9 2.4 2.1 RoA (%) 1.1 0.9 0.9 1.1 RoE (%) 18.7 16.2 16.4 20.1 Source: Company, Angel Research ACCUMULATE CMP Rs2,784 Target Price Rs3,185 Investment Period 12 Months Stock Info Sector Banking Market Cap (Rs cr) 1,76,751 Beta 1.2 52 Week High / Low 2,798/1,670 Avg. Daily Volume 4,84,717 Face Value (Rs) 10 BSE Sensex 18,074 Nifty 5,416 Reuters Code SBI.BO Bloomberg Code SBIN@IN Shareholding Pattern (%) Promoters 59.4 MF / Banks / Indian Fls 19.9 FII / NRIs / OCBs 14.8 Indian Public / Others 5.9 Abs. (%) 3m 1yr 3yr Sensex 5.1 20.3 21.6 SBI 19.8 63.5 83.6 Vaibhav Agrawal 022 – 4040 3800 Ext: 333 [email protected]Amit Rane 022 – 4040 3800 Ext: 326 [email protected]Shrinivas Bhutda 022 – 4040 3800 Ext: 316 [email protected]State Bank of India Performance Highlights 1QFY2011 Result Update | Banking August 12, 2010
Transcript
Please refer to important disclosures at the end of this report 1
For 1QFY2011, State Bank of India’s (SBI) standalone net profit grew 25.1% yoy and 56.1% qoq, which exceeded our estimates on account of better-than-estimated NII and lower operating expenses. Robust operating performance with reasonable asset quality was the key highlight of the result. We maintain an Accumulate rating on the stock.
Robust operating performance: The bank’s net advances increased 20.4% yoy and 3.4% qoq to Rs6,53,220cr, while total deposits grew 6.8% yoy and 1.4% qoq to Rs8,15,297cr during 1QFY2011. Reported net interest margin (NIM) improved by 22bp qoq and 88bp yoy to 3.18% during the quarter despite a hit of 12bp due to change in the method of calculation of SA interest. The margin expansion was underpinned by improvement in the CASA ratio to 47.5% as of 1QFY2011 from 38.5% as of 1QFY2010 and from 46.7% as of 4QFY2010 coupled with shedding of high-cost bulk deposits. Gross NPAs were up by 6.6% qoq and net NPAs increased 1.9% qoq to Rs20,825cr and Rs11,074cr, respectively. NPA provision coverage ratio including technical write-offs improved to 60.7% compared to 59.2% as of 4QFY2010.
Outlook and Valuation: Due to strong CASA and fee income, SBI’s core RoEs have improved over the past few years and unlike virtually all other PSBs, actual FY2010 RoEs are below core levels due to low asset yields, providing scope for upside as the CD ratio improves and yields normalise to sectoral averages. SBI is trading at 2.1x FY2012E ABV while excluding value of insurance and capital market subsidiaries, it is trading at 1.7x FY2012E ABV v/s its 5-year range of 1.3-2.0x and median of 1.7x. We believe this provides reasonable upside, especially in light of its dominant position and reach, strong growth and superior earnings quality. We maintain an Accumulate on the stock, with a Target Price of Rs3,185.
Key Financials Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
NII 20,873 23,671 30,834 37,558
% chg 22.6 13.4 30.3 21.8
Net Profit 9,332 9,398 10,771 15,042
% chg 38.7 0.7 14.6 39.6
NIM (%) 2.6 2.5 2.8 2.9
EPS (Rs) 147.0 148.0 169.7 236.9
P/E (x) 18.9 18.8 16.4 11.8
P/ABV (x) 3.4 2.9 2.4 2.1
RoA (%) 1.1 0.9 0.9 1.1
RoE (%) 18.7 16.2 16.4 20.1 Source: Company, Angel Research
Exhibit 2: 1QFY2011 Actual vs. Estimates Particulars (Rs cr) Actual Estimates Var (%)
Net interest income 7,304 6,404 14.0
Non-interest income 3,690 3,848 (4.1)
Total income 10,994 10,252 7.2
Operating expenses 4,859 5,374 (9.6)
Pre-prov. profit 6,134 4,878 25.8
Provisions & cont. 1,551 1,372 13.1
PBT 4,583 3,506 30.7
Prov. for taxes 1,669 1,192 40.0
PAT 2,914 2,314 26.0
Source: Company, Angel Research
State Bank of India | 1QFY2011 Result Update
August 12, 2010 3
Advances grow in line with industry, deposits growth lags
During the quarter, net advances of the bank increased 20.4% yoy and 3.4% qoq to Rs6,53,220cr, underpinned by strong growth in large corporate advances of 34.7% yoy and growth in home loans of 29.8% yoy. Loan book of the bank continues to be well diversified with no segment accounting for more than 21% of the total loan book. The growth in advances was driven by the telecom related lending (Rs7,000cr) and upturn in textiles, iron and steel, auto, infrastructure and gems & jewellery industry. Going forward, the credit demand from the large and mid corporate segments is expected to be strong, with sanctions in pipeline of Rs14,798cr and Rs7,791cr, respectively. Exhibit 3: Segment-wise advances yoy growth rates
Segment %
Large Corporate 34.7
Mid-Corporate 14.3
SME 14.7
Agricultural 16.0
International 22.1
Home 29.8
Auto 48.1
Education 30.8
Overall Advances 20.4
Source: Company, Angel Research
Deposits of the bank went up from Rs7,63,563cr in 1QFY2010 to Rs8,15,297cr in 1QFY2011 recording a yoy growth of 6.8%, driven by CASA growth of 28.9% and retail term deposits growth of 10.2%, despite shedding of high-cost bulk deposits by 51.4%. Current deposits increased 12.5% yoy, while savings deposits rose 33.9% yoy. Savings bank deposits grew at an average of Rs9,232cr per month during the quarter to Rs71,806cr as of 1QFY2011 leading to an improvement in CASA ratio from 38.5% as of 1QFY2010 to 47.5% as of 1QFY2011 (46.7% in 4QFY2010). As a result, NII increased by 45.4% yoy and 8.7% qoq to Rs7,304cr in 1QFY2011. Exhibit 4: Business growth trend
Source: Company, Angel Research
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1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Advances YoY Growth Deposits YoY Growth Credit-Deposit Ratio (RHS)(%) (%)
State Bank of India | 1QFY2011 Result Update
August 12, 2010 4
Exhibit 5: Well-diversified loan book - 1QFY2011
Source: Company, Angel Research
NIM continues its ride on growth path
The bank’s reported NIM has been in an upward trend since hitting a low of 2.30% in 1QFY2010 from which it has improved by 88bp to 3.18% in 1QFY2011. Even on a sequential basis, NIM has expanded by 22bp despite the 12bp hit due to the switch in calculation method of savings deposits interest. The improvement in NIMs was driven by increase in the CD ratio to 80.1% (from 78.6% in 4QFY2010), shedding of bulk deposits and increase in CASA ratio. Exhibit 6: Trend in spreads and NIMs
Source: Company, Angel Research
Reasonable asset quality
SBI’s asset quality suffered slightly during the quarter as gross NPAs rose 6.6% qoq to Rs20,825cr, while net NPAs increased 1.9% qoq to Rs11,074cr partly due to the net increase in gross NPAs from agricultural advances of Rs683cr, which included Rs354cr towards the Agri Debt Waiver scheme. The gross and net NPA ratio remained steady sequentially at 3.1% and 1.7%, respectively.
The gross slippages during the quarter were Rs4,081cr, which came primarily from the agri, retail and SME portfolios. The annualised slippage ratio stood at 2.6% compared to 2.2% in FY2010. The bank’s corporate and SME portfolio accounted for more than 56.0% of the total gross NPAs of Rs20,825cr. The provision
International16%
Mid-Corporate20%
Large Corporate
14%SME17%
Agricultural9%
Retail21%
Others3%
10.01 10.24 10.42 10.15 10.01 9.95 9.79 9.66 9.30
6.16 5.94 5.95 6.30 6.16 6.06 5.92 5.80 5.27
3.03 3.16 3.10 2.39 2.30 2.55 2.82 2.96 3.18
0.00
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Yield on Advances Cost of Deposits Reported NIM(%)
State Bank of India | 1QFY2011 Result Update
August 12, 2010 5
coverage ratio including technical write-offs improved from 59.2% as of 4QFY2010 to 60.7% as of 1QFY2011.
Out of the cumulative standard restructured assets under the RBI Special Dispensation Scheme which stood at Rs16,796cr as of 4QFY2010, Rs158cr turned into NPAs during the quarter taking the cumulative slippages from restructured book to Rs1,774cr (10.6% of the restructured loan book). The bank’s restructured loans outside the RBI scheme stood at Rs12,900cr, indicating cumulative restructuring/net worth of 43.1% compared to sector average of 68.3%. Exhibit 7: Trend in asset quality
Provisioning expenses rose substantially on a yoy basis to Rs1,551cr in 1QFY2011, on the back of higher NPA provisions (Rs1,733cr) and lower write-back of investment provisions (Rs298cr).
Operating expenses declined 19.5% qoq and 1.2% yoy to Rs4,859cr driven by a 14.4% qoq and 9.9% yoy fall in staff expenses. Decrease in operating expenses coupled with robust operating performance improved the cost-to-income ratio to 44.2% compared to 53.7% in 4QFY2010 and 57.2% in 1QFY2010. There was a write-back of Rs845cr from excess provision on wage revision during the quarter. The bank made a provision of Rs1,100cr for gratuity during 1QFY2011 against the estimated liability of Rs2,200cr for FY2011E for the increase in gratuity ceiling.
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Gross NPAs Net NPAs Provision coverage (RHS)(Rs cr) (%)
Source: Company, Angel Research Comfortable capital adequacy
The bank has continued to maintain comfortable capital adequacy ratio of above 13.5%. As of 1QFY2011, the overall capital adequacy stood at 13.54% with tier I forming more than 72.3% of the total CAR.
The bank is likely to come out with a rights issue by the end of FY2011 to sustain the CAR at comfortable levels. The government has already approved diluting its stake to 51% from the existing stipulated dilution level of 55%. This provides significant headroom for dilution with the existing government holding at 59.4%. Exhibit 11: Comfortable capital adequacy
Source: Company, Angel Research
45 46
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52 54
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Employee Expenses Other Expenses Cost-to-income ratio (RHS)(Rs cr) (%)
9.4 9.7 9.8 9.7 9.5 9.8
4.9 4.4 4.3 4.1 3.9 3.8
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Tier I Tier II(%)
State Bank of India | 1QFY2011 Result Update
August 12, 2010 7
Muted non-interest income, supported strongly by fee income
Total non-interest income growth was muted at 3.4% yoy on account of 75.5% yoy decline in profit on sale of investments. Non-interest income excluding profit on sale of investments was up by 23.0% yoy. Fee income went up 29.4% yoy, driven by robust growth in loan processing charges, non-fund based business, government business and cross-selling. Forex income increased 6.8% yoy to Rs503cr. Growth in other non-interest income was driven by the 42.0% growth in recoveries from written-off accounts.
Exhibit 12: Breakup of non-interest income (Rs cr) 1QFY11 4QFY10 % chg (qoq) 1QFY10 % chg (yoy)
CEB 2,410 3,486 (30.9) 1,862 29.4
Treasury 173 426 (59.3) 709 (75.5)
Forex 503 185 172.1 470 6.8
Dividend 377 47 700.7 358 5.3
Others 227 365 (37.8) 169 34.2
Total 3,690 4,509 (18.2) 3,569 3.4
Source: Company, Angel Research
Performance of Associates and Subsidiaries
Advances and deposits of associate banks recorded yoy growth of 18.4% and
16.0%, respectively. Gross and net NPAs of the associate banks stood at 2.1%
and 1.0%, respectively.
Operating profit of associate banks increased 47.4% yoy to Rs1,881cr
(Rs1,276cr). However, net profit of the associate banks declined marginally by
0.5% yoy mainly on account of higher provisioning for NPAs taking the
provision coverage ratio to a healthy 66%.
SBI Life earned PAT of Rs114cr (Rs39cr), registering yoy growth of 192.3%.
AuM of the company increased by 64.0% yoy to reach Rs30,082cr. The
company was ranked second amongst the private insurance companies under
New Business Premium, as on June, 2010.
SBI Capital Markets posted PAT of Rs157cr for 1QFY2011, registering a yoy
growth of 93% after excluding provision of Rs64cr towards syndication fee
sharing payable to SBI.
SBI Funds Management posted PAT of Rs15cr in 1QFY2011 as against Rs14cr
for 1QFY2010.
SBI Cards and Payment Services turned-around in 1QFY2011 with net profit of
Rs3cr compared to loss of Rs24cr in 1QFY2010.
The overall SBI Group recorded net profit growth of 22.0% yoy to Rs3,365cr
(Rs2,759cr) for 1QFY2011.
State Bank of India | 1QFY2011 Result Update
August 12, 2010 8
Exhibit 13: Yoy growth rates for associate banks
(%) Deposits Advances Operating Profit Net Profit
State Bank of Bikaner & Jaipur 23.8 21.7 34.9 (30.0)
State Bank of Hyderabad 24.6 27.4 53.9 82.6
State Bank of Indore 2.3 9.6 30.5 (76.6)
State Bank of Mysore 17.7 16.9 55.2 35.5
State Bank of Patiala 5.2 12.4 98.6 10.3
State Bank of Travancore 19.6 18.4 12.8 (16.6)
Total 16.0 18.4 47.4 (0.5)
Source: Company, Angel Research
State Bank of India | 1QFY2011 Result Update
August 12, 2010 9
Investment Arguments
Improving savings market share
Up to FY2007, the bank witnessed a significant decline in CASA market share with private sector banks pursuing aggressive branch expansion. However, the bank’s market share of savings deposits expanded by a substantial 270bp to 23.2% during FY2007-10 (one of the few PSBs to do so) driven by relatively faster branch expansion (9.5% CAGR v/s 2-5% for most PSBs) leveraging its tremendous trust factor in the country.
Strongest fee income among PSU banks
SBI has a relatively strong share of fee income owing to its strong corporate and government business relationships. During FY2010, the bank continued its dominance with non-interest income/assets at 1.3% (highest among PSU banks).
Asset quality concerns receding
SBI has a gross NPA ratio of 3.1% and net NPA ratio of 1.7%, leading to a low provision coverage ratio of 60.7% (including technical write-offs) and restructured loans of around Rs30,000cr, constituting 43% of its net worth, which is lower than the peer average. We have factored in a slippage ratio of 2.2% for FY2011E (equal to slippage ratio in FY2010) on a conservative basis. This provides sufficient margin of safety to our provisions estimates.
Outlook and Valuation
Due to strong CASA and fee income, SBI’s core RoEs have improved over the past few years and unlike virtually all other PSBs, FY2010 RoEs are below core levels due to low asset yields, providing scope for upside as the CD ratio improves and yields normalise to sectoral averages.
At CMP, SBI is trading at 2.1x FY2012E ABV while excluding value of insurance and capital market subsidiaries, it is trading at 1.7x FY2012E ABV v/s its 5-year range of 1.3-2.0x and median of 1.7x. We believe this provides reasonable upside, especially in light of its dominant position and reach, strong growth and superior earnings quality. We maintain an Accumulate on the stock, with a Target Price of Rs3,185.
State Bank of India | 1QFY2011 Result Update
August 12, 2010 10
Exhibit 14: SOTP valuation summary Company (Rs) Value per share
Disclosure of Interest Statement State Bank of India 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock Yes 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors. Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)
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