State Bank of India (Q4 FY12)

India Infoline News Service | Mumbai |

SBI’s gross advances grew behind our expectation at 3% qoq with yoy growth tracking the system at 16%.

CMP Rs1,942, Target Rs2,150, Upside 10.7% 
  • Modest growth in advances; deposit profile remains strong 
  • NIM remains resilient; FY13 NIM unlikely to be materially lower than FY12
  • Huge sequential spike in other income; core fees growth continue to be muted
  • Lower slippages and sharp PCR improvement was a positive surprise
  • Re-rating likely on the back of resilient NIM and slippage outlook; upgrade to BUY   
Result table
 (Rs m) Q4 FY12 Q3 FY12 % qoq Q4 FY11 % yoy
Total Interest Income 286,955 276,614 3.7 217,214 32.1
Interest expended (169,918) (161,956) 4.9 (136,633) 24.4
Net Interest Income 117,038 114,659 2.1 80,581 45.2
Other income 52,640 21,260 147.6 48,155 9.3
Total Income 169,678 135,918 24.8 128,735 31.8
Operating expenses (73,710) (63,318) 16.4 (67,938) 8.5
Provisions (31,404) (24,074) 30.4 (41,570) (24.5)
PBT 64,564 48,526 33.1 19,227 235.8
Tax (24,061) (15,895) 51.4 (19,019) 26.5
Reported PAT 40,503 32,630 24.1 209 -
EPS 241.4 205.5 17.5 1.3 -

Key  Ratios Q4 FY12 Q3 FY12 chg qoq Q4 FY11 chg yoy
NIM (%) 3.9 4.1 (0.2) 3.1 0.8
Yield on advances (%) 11.1 10.9 0.1 9.6 1.5
Cost of Deposits (%) 6.0 5.9 0.0 5.3 0.7
CASA (%) 46.6 47.5 (0.9) 48.5 (1.9)
C/D (%) 82.9 84.5 (1.6) 81.0 1.9
Non-int inc (%) 45.0 18.5 26.4 59.8 (14.8)
Non-int inc/Int exp (%) 31.0 13.1 17.9 35.2 (4.3)
Cost to Income (%) 43.4 46.6 (3.1) 52.8 (9.3)
RoE (%) 22.0 18.1 3.9 0.1 21.9
RoA (%) 1.2 1.0 0.2 0.0 1.1
CAR (%) 13.9 11.6 2.3 12.0 1.9
Gross NPA (%) 4.4 4.6 (0.2) 3.3 1.1
Net NPA (%) 1.8 2.2 (0.4) 1.6 0.2
Source: Company, India Infoline Research

Modest growth in advances; deposit profile remains strong   

SBI’s gross advances grew behind our expectation at 3% qoq with yoy growth tracking the system at 16%. Management attributed the muted increase in loan book during the quarter to lower borrowings by oil marketing companies. Domestic loans grew by 14% during FY13 driven by stronger growth in agri (23% yoy), SME (16% yoy) and home (18% yoy) loans. International book grew by 24% yoy but the dollar growth was modest at 9% yoy. Sequential growth in deposits was higher than advances at 4.3% qoq lowering the C/D ratio by 200bps qoq. Annual deposits growth was muted though at 12% (domestic 11%) impacted by decline in current account balances. CASA ratio declined by 100bps qoq to 46.6% on account of 2% decline in savings balances. Mobilization of retail TDs (6% qoq) remained strong. The share of bulk TDs in overall deposits remained low at 11-12%, one of the lowest in the industry. 


NIM remains resilient; FY13 NIM unlikely to be materially lower than FY12

After touching a historic high of 4.1% in Q3 FY12, NIM corrected in line with expectations by 15bps qoq to 3.9%. Decline in domestic margin was modest at 10bps due to decline in C/D ratio; domestic NIM at 4.3% remains the best amongst larger public and private banks. The trend in monthly NIMs of SBI suggest that margin has been resilient to higher retail TD costs and spike in wholesale funding rates. For FY12, NIM stood at 3.85% (much higher than guidance of 3.7%) representing a significant 50bps improvement yoy aided by strong asset re-pricing. NII growth in FY12 was at robust 33%. Though margin may come-off a bit in the medium term due to inelasticity in deposit rates, full-year NIM is unlikely to be materially lower than FY12.   


Huge sequential spike in other income; core fees growth continue to be muted

Core fee income of the bank grew by substantial 60% qoq on account of seasonality in some of the streams. However, full-year growth was muted at just 5% with 11% decline in the largest component of loan processing charges on the back of lackluster capex activity. Transaction fees (14% of total fees) grew by robust 50% yoy during the year. Overall non-interest income growth in FY12 was also impacted by huge loss (Rs9.2bn) booked on the equity and MF portfolios (last year an equivalent profit was booked). The cost/income ratio for the year stood at 45% which the bank targets to bring down to 41-42% over the next two years.


Lower slippages and sharp PCR improvement was a positive surprise

Pleasantly surprising, SBI’s GNPL declined marginally on sequential basis to form a lower 4.4% of gross advances. The big positive was slippages being substantially lower than expectation at Rs44bn; were around Rs81bn in the previous two quarters. Bulk (more than 50%) of the slippages was from large and mid corporate segments and from sectors such as textiles, infra and iron & steel. The delinquency ratio for the quarter was at 2% and for the year stood at 3.3%. Upgradation and recovery was also robust in Q4 FY12 at Rs47bn, higher 140% qoq. Restructuring during the quarter was also lower than our expectation at Rs52bn (including Rs12bn Air India exposure). Outstanding restructured assets stood at 4.3% of advances, lower than many other PSU Banks. Restructuring and slippages outlook remains non-perturbing due to relatively larger retail exposure of the bank. Loan-loss provisioning was more than commensurate (credit cost at 1.3%) thereby improving the PCR to 68% from 62% in the previous quarter.


Re-rating likely on the back of resilient NIM and slippage outlook; upgrade to BUY  

Q4 FY12 performance of SBI was robust with incremental trends in margin and asset quality being much more encouraging than peers. A resilient NIM and slippage outlook would ensure that RoA sustains above 1% and RoE above 18%. Further, aided by Rs80bn equity infusion, the capitalization of the bank stands improved (CAR at 13.9% and Tier-1 capital at 9.8%) and seems adequate to support 16-18% balance sheet growth over the next two years. We expect SBI’s valuation to re-rate in the medium term and therefore upgrade our rating to BUY with 9-month target price of Rs2150.


Financial summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
BSE 312.75 [1.30] ([0.41]%)
NSE 312.25 [1.75] ([0.56]%)

***Note: This is a NSE Chart

 

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