State Bank of India (Q1 FY13)

India Infoline News Service | Mumbai |

Sharp NIM correction was a negative surprise; FY13 NIM could be materially lower than FY12

  • Healthy growth in advances; deposit profile remains strong 

  • Sharp NIM correction was a negative surprise; FY13 NIM could be materially lower than FY12

  • Lackluster fee growth; steep sequential decline in opex support C/I ratio 

  • Substantially higher than expected slippages; PCR declines on lower provisioning

  • Reset of margin and slippages expectations; downgrade to MP 

Result table
 (Rs m) Q1 FY13 Q4 FY12 % qoq Q1 FY12 % yoy
Total Interest Income 289,167 286,955 0.8 241,974 19.5
Interest expended (177,979) (169,918) 4.7 (144,979) 22.8
Net Interest Income 111,188 117,038 (5.0) 96,995 14.6
Other income 34,988 52,640 (33.5) 35,342 (1.0)
Total Income 146,176 169,678 (13.9) 132,338 10.5
Operating expenses (64,410) (73,710) (12.6) (59,913) 7.5
Provisions (24,563) (31,404) (21.8) (41,569) (40.9)
PBT 57,203 64,564 (11.4) 30,855 85.4
Tax (19,688) (24,061) (18.2) (15,020) 31.1
Reported PAT 37,516 40,503 (7.4) 15,836 -

Key  Ratios Q1 FY13 Q4 FY12 chg qoq Q1 FY12 chg yoy
NIM (%) 3.6 3.9 (0.3) 3.6 (0.1)
Yield on advances (%) 10.9 11.1 (0.2) 10.4 0.4
Cost of Deposits (%) 6.2 6.0 0.3 5.7 0.6
CASA (%) 46.1 46.6 (0.5) 47.8 (1.7)
C/D (%) 83.1 82.9 0.2 81.1 2.0
Non-int inc (%) 31.5 45.0 (13.5) 36.4 (5.0)
Cost to Income (%) 44.1 43.4 0.6 45.3 (1.2)
RoE (%) 18.4 22.0 (3.6) 9.6 8.8
RoA (%) 1.0 1.2 (0.1) 0.5 0.5
CAR (%) 13.2 13.9 (0.7) 11.6 1.6
Gross NPA (%) 5.0 4.4 0.6 3.5 1.5
Net NPA (%) 2.2 1.8 0.4 1.6 0.6
Source: Company, India Infoline Research

Healthy growth in advances; deposit profile remains strong   

SBI’s advances grew ahead of expectation at 6% qoq/19% yoy. Domestic book grew by 3% qoq/14% yoy, marginally behind the system. The domestic loan mix moved towards relatively safer but lower yielding large corporate segment (13% qoq/24% yoy). With high slippages emanating from mid corporate (0% qoq/5% yoy) and SME (-4% qoq/12% yoy) segments, the bank was averse to grow in these areas. Retail book grew by modest 2% qoq with auto loans and home loans growing by 4% qoq and 2.6% qoq respectively. Deposits grew in line with advances at 6% qoq/16% yoy. Despite a 15% qoq decline in current deposits, domestic CASA ratio was largely stable at 46% aided by robust 8.5% qoq growth in savings balance. SBI added 5.3mn savings accounts during Q1 FY13. Mobilization of retail TDs (25% yoy) remained strong with its share within domestic TDs reaching 80%. The share of bulk TDs at 11% in deposits remains one of the lowest in the industry. The bank does not have any high-cost CDs outstanding.


Sharp NIM correction was a negative surprise; FY13 NIM could be materially lower than FY12

After being resilient in Q4 FY12, SBI’s NIM contracted sharply by 32bps qoq to 3.6% against our expectation of 12-15bps decline. Margin contraction was driven by a 42bps qoq decline in domestic NIM to 3.9%. In line with other public banks, SBI’s domestic margin has come-off by 50bps over the past two quarters on account of higher cost of funds and contraction in blended loan yield with shift in loan mix towards lower yielding assets. Bank’s international NIM expanded by material 25bps qoq to 1.8%. Though the bank has retained FY13 NIM guidance at 3.75%, we attribute a low probability to its achievement. SBI believes that strong savings growth and deployment of excess SLR (~Rs300-400bn) in to more productive assets (loans or better yielding investments) would be the key levers for margin expansion in ensuing quarters. In our view, sticky term deposits cost and recent reduction in interest rates for SME and retail products could preclude margin improvement. We therefore estimate FY13 NIM to be 15-20bps lower than FY12.   


Lackluster fee growth; steep sequential decline in opex support C/I ratio 

Core fee income growth continued to moderate in Q1 FY13; yoy growth decelerated to -1% from 5% in Q4 FY12. Large fee components such as loan processing charges (-22% yoy), transaction fees (-5% yoy) and LC commission (-2% yoy) witnessed negative growth. Treasury performance was strong on the other hand with trading/MTM gains of Rs2.2bn and forex income up 30% qoq to Rs4.6bn. Lower provision for employee benefits and decline in salary expenses and overheads led to a steep sequential fall in opex. Resultantly, cost/income ratio was stable despite a dejecting revenue performance. 


Substantially higher than expected slippages; PCR declines on lower provisioning

SBI’s Gross NPLs jumped by substantial Rs75bn during Q1 FY13, increasing the ratio to 5%. Fresh slippages of Rs108bn were significantly higher than our estimate and management’s indication in the recent past. About 80% of delinquencies came from Mid corporate, SME and Agri segments. The delinquency ratio for the quarter stood at alarming 4.9% against 3.3% for the full-year FY12. Upgradation and recovery continued to be strong at Rs33bn but looked small in front of huge slippages. SBI expects Rs25-30bn of Q1 FY13 slippages to be upgraded over the next two quarters. Restructuring during the quarter was negligible at Rs5.4bn and the outstanding restructured assets stood at 4% of advances, lower than most PSU Banks. Restructuring pipeline at ~Rs30bn is non-perturbing. Despite the steep jump in Gross NPA, credit cost was maintained at 1.3% thereby reducing the PCR to 64% from 68% in the previous quarter.


Reset of margin and slippages expectations; downgrade to MP  

SBI’s Q1 FY13 performance was operationally weak as margin and delinquencies surprised negatively. With the street working with fairly aggressive NIM and slippage assumptions for FY13 (post the encouraging Q4 FY12 results), a downward reset in them is inevitable. Adjusting our projections for lower margin, higher delinquencies and slower fee income growth, we revise our FY13/14 BV estimates downwards by 8-9%. Consequently our 9-month target price has been lowered to Rs2,050. Downgrade SBI to Market Performer.


Financial summary
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BSE 314.05 0.80 (0.26%)
NSE 314.00 0.70 (0.22%)

***Note: This is a NSE Chart

 

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Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Total operating income 483,510 576,426 628,739 723,749
yoy growth (%) 25.1 19.2 9.1 15.1
Operating profit (pre-provisions) 253,355 315,736 340,677 396,798
Net profit 82,645 117,074 138,952 169,258
yoy growth (%) (9.8) 41.7 18.7 21.8





EPS (Rs) 130.1 174.5 207.1 252.2
BVPS (Rs) 829.0 1,015.3 1,058.9 1,222.2
P/E (x) 14.5 10.8 9.1 7.5
P/BV (x) 2.3 1.9 1.8 1.5