State Bank of India (Q1 FY15)

India Infoline News Service | Mumbai |

SBI’s cumulative domestic NIM improved marginally to 3.54% while cumulative international NIM declined sharply to 1.08% from 1.42% in the previous quarter thus driving a small sequential correction in global NIM.

CMP Rs2,415, Target Rs3,000, Upside 24.2% 
  • Domestic loan growth decelerates to 11.5% yoy; growth to pick-up over coming quarters 

  • Robust growth in retail term deposits continues; Domestic NIM marginally improves

  • Fee growth decelerates; cost/income ratio improves on muted opex growth 

  • Stress assets addition remains worrisome but should abate with economic revival 

  • Retain BUY with 9-12 month price target to Rs3,000 

Result table
(Rs mn) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Total Interest Income 364,871 358,576 1.8 317,183 15.0
Interest expended (232,349) (229,548) 1.2 (202,065) 15.0
Net Interest Income 132,522 129,028 2.7 115,119 15.1
Other income 42,521 65,857 (35.4) 44,743 (5.0)
Total Income 175,043 194,885 (10.2) 159,862 9.5
Operating expenses (87,166) (88,606) (1.6) (84,349) 3.3
Provisions (34,967) (58,911) (40.6) (28,659) 22.0
PBT 52,910 47,368 11.7 46,854 12.9
Tax (19,419) (16,960) 14.5 (14,443) 34.5
Reported PAT 33,491 30,408 10.1 32,411 3.3
EPS 179.4 162.9 10.1 189.5 (5.3)

(Rs mn) Q1 FY15 Q4 FY14 chg qoq Q1 FY14 chg yoy
Cum NIM (%) - Overall 3.1 3.2 (0.0) 3.2 (0.0)
Cum NIM (%) - Domestic 3.5 3.5 0.0 3.5 0.1
Cum NIM (%) - Intl 1.1 1.4 (0.3) 1.5 (0.4)
YoA (%) – Domestic 10.6 10.5 0.1 10.2 0.4
CoD (%) – Domestic 6.3 6.3 0.0 6.2 0.1
CASA (%) 43.5 44.4 (0.9) 44.7 (1.2)
C/D (%) 84.5 86.8 (2.3) 84.4 0.1
Cost to Income (%) 49.8 45.5 4.3 52.8 (3.0)
Credit Cost (%) 1.3 2.0 (0.7) 0.9 0.4
RoA (%) 0.7 0.7 0.1 0.8 (0.1)
CAR (%) 12.3 12.4 (0.1) 12.1 0.2
Gross NPA (%) 4.9 5.0 (0.0) 5.6 (0.7)
Net NPA (%) 2.7 2.6 0.1 2.8 (0.2)
Source: Company, India Infoline Research

Domestic loan growth decelerates to 11.5% yoy; growth to pick-up over coming quarters  

SBI’s domestic credit growth decelerated to 11.5% yoy from 13.6% yoy in the previous quarter driven by a sharp growth moderation in Mid Corporate (from 11% yoy to 4% yoy), Agri (from 11% yoy to -2% yoy) and Retail segments (from 13.3% yoy to 12% yoy). SME portfolio of the bank continues to de-grow while the growth in Large Corporate segment remained robust at 34% yoy in Q1 FY15. Over the past many quarters, SBI has been cautious and selective in its growth approach in Mid Corporate and SME segments while pushing growth in Large Corporate (focus on better rated loans) and Retail segments. The combined share of Mid Corporate and SME loans within domestic advances has declined by 400bps since Q1 FY14 while the contribution of large corporate and retail loans has increased by an equivalent extent. Within retail portfolio, growth in home loans was healthy at 16% yoy while growth in auto loans came-off sharply to 7% yoy (13% yoy in Q4 FY14) which could be attributable to weakness in vehicle industry volume growth. We believe that SBI’s domestic loan growth is likely to improve by the year-end to 15-16% on the back of economic recovery. Based on the current capitalization level (9.9% Tier-1 capital including Q1 FY15 retained profits) and an expected improvement in internal capital generation, we estimate SBI’s loan CAGR at 18% over FY14-16.   

Robust growth in retail term deposits continues; Domestic NIM marginally improves

Domestic deposits grew ahead of advances at 12.7% yoy. The retail term deposits grew by robust 30% yoy and comprised 48% of total domestic deposits as compared to 42% in Q1 FY14. Savings deposits growth moderated to 12% yoy partially impacted by depositors shifting balances to term deposits. With a steep 19% qoq fall in current deposits, the quarter-end CASA ratio deteriorated by 90bps qoq to 43.5%. The retail TDs and CASA combined comprised 91.6% of domestic deposits; bank expects the share of bulk funding to fall further. 


SBI’s cumulative domestic NIM improved marginally to 3.54% while cumulative international NIM declined sharply to 1.08% from 1.42% in the previous quarter thus driving a small sequential correction in global NIM. Domestic cumulative yield on advances witnessed some improvement despite the shift in loan mix towards large corporate and retail segments while cost of deposits was largely stable with retail TDs substituting some higher costing bulk deposits. SBI’s domestic NIM is likely to remain stable in the near term before starting to gradually improve on account of incremental shift in loan mix towards better-yielding SME & Mid Corporate segments, moderation in impaired assets creation and improvement in pricing power. 

Fee growth decelerates; cost/income ratio improves on muted opex growth 

Core fee income growth decelerated to 11% yoy (15% yoy in Q4 FY14) with sustained de-growth in loan processing fees which is impacted by muted new project activity. Bank’s trading profit was higher at Rs5.8bn as against Rs4bn in the previous quarter. Forex income was 33% lower qoq which could be attributable in part to lesser volatility in the currency during the quarter. Staff cost was flat yoy due to lower provision for superannuation benefits (Rs9bn v/s Rs12bn) and modest growth of 8% yoy in salary expenses which in turn was driven by 2.5% yoy decline in overall headcount. Consequently, total opex grew by just 3% yoy thus underpinning a 300bps lower cost/income ratio on yoy basis. 

Stress assets addition remains worrisome but should abate with economic revival 

Fresh slippages came in at Rs99bn, materially higher than our estimate of Rs85bn. The delinquency ratio increased to 3.3% from 2.7% in the previous quarter. About 87% of slippages during the quarter were contributed by Mid Corporate, SME and Agri segments; their contribution to slippages in Q2 FY14, Q3 FY14 and Q4 FY14 was at 80%, 85% and 94% respectively. Delinquencies in Large Corporate and Retail segments continued to remain benign, also reflected in lower Gross NPLs of 0.6% and 1.5% respectively. Aided by substantial write-offs and sale to ARC (combined Rs85-88bn), Gross NPLs for the bank were contained at 4.9%. Fresh restructuring during the quarter was significantly lower qoq at Rs36bn (Rs79bn in Q4 FY14), however, increase in the already restructured NPA accounts was significant this quarter at Rs21bn. Driven by higher slippages, loan loss provisioning was elevated at Rs39bn implying an annualized credit cost of 130bps. Provision reversal of Rs5.5bn on the international treasury portfolio (due to softening of yields) cushioned the impact of higher credit cost on profit. PCR was sustained at 62%. We believe that substantial stress in Mid Corporate (Gross NPL ratio at 11%) and SME (Gross NPL ratio at 10%) segments has been already been recognized by the bank and incremental delinquencies in these segments could start to diminish after a couple of quarters.

Retain BUY with 9-12 month price target to Rs3,000

We believe that RoA improvement trajectory remains intact for SBI. It would be driven by NIM expansion, acceleration in non-interest income growth, restrained cost growth and moderation in credit cost. We expect SBI to post a strong 36% earnings growth and material RoA recovery of 25-30bps over FY14-16. Further, the valuation of banking, financial services and insurance subsidiaries has received a boost from signs of improvement in the business environment. Retain BUY on SBI with 9-12 month price target of Rs3,000. 


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Total operating income 603,661 678,350 774,355 919,792
yoy growth (%) 4.7 12.4 14.2 18.8
Operating profit (pre-prov) 310,817 321,090 392,086 480,184
Net profit 141,050 108,900 146,505 200,690
yoy growth (%) 20.5 (22.8) 34.5 37.0
 
EPS (Rs) 206.2 145.8 196.1 268.7
Adj.BVPS (Rs) 1,124.6 1,167.2 1,291.3 1,525.9
P/E (x) 11.7 16.6 12.3 9.0
P/BV (x) 2.1 2.1 1.9 1.6
ROE (%) 15.4 10.0 11.8 14.6
ROA (%) 1.0 0.6 0.8 0.9
Dividend yield (%) 1.7 1.2 1.7 2.1
CAR (%) 12.9 12.4 11.4 10.7
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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