Sharekhan Investor’s Eye : State Bank of India

State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,801
Current market price: Rs1,057

Q2FY2009 results: First-cut analysis

Result highlights

The Q2FY2009 bottom line of State Bank of India (SBI) is above our estimate. SBI has reported a net profit of Rs2,259.7 crore for the quarter, indicating a growth of 40.2% year on year (yoy).

The net interest income (NII) for the quarter has come in at Rs5,455.4 crore, up 45% yoy. This growth can be ascribed to a robust 37.5% growth in the net advances coupled with a 15-basis-point expansion in the net interest margin (NIM).

The non-interest income for the quarter has come in at Rs2,343.1 crore (up 14.8% yoy) compared with Rs2,041.9 crore in Q2FY2008. Importantly, the ‘commissions, exchange and brokerage’ saw a significant growth (41% yoy) during the quarter. However, the weaker treasury gains (down 63.5% yoy) and muted growth in foreign exchange (forex) income (up 11% yoy) suppressed the overall growth in the non-interest income.

The provisions and contingencies for Q2FY2009 registered a seven-fold increase and stood at Rs610.6 crore, driven by higher provisions on the non-performing assets (NPAs) and standard assets and partly due to the lower base of Q2FY2008. Notably, the bank wrote back marked-to-market provisions of Rs480.3 crore during the quarter.

In Q2FY2009, SBI’s advances grew by a robust 37.5% yoy to Rs493,413 crore on the back of a strong growth in the advances to large corporates (up 48.5%) and small and medium enterprises (SME; up 47.2%). The deposits grew at a relatively lower rate (28% yoy), implying a 550-basis-point expansion in the deployment rate. Further, the current account and savings account (CASA) ratio improved by 260 basis points yoy to 39.7%; the same is down 220 basis points sequentially though.

SBI’s asset quality deteriorated on absolute basis during the quarter. The NPA increased by 12.1% yoy to Rs12,552.3 crore at the gross level and to Rs6,617.9 crore (a growth of 13.5%) at the net level. However, on relative basis, the bank has reported an improvement of 56 basis points and 29 basis points at gross and net levels to 2.51% and 1.34% respectively.

Its associate banks’ net profit has come in at Rs692.5 crore for Q2FY2009 as compared with Rs452.5 crore for the corresponding quarter of the last year. Among its non-banking subsidiaries, SBI Cards continued to make loss (Rs27.9 crore in Q2FY2009) due to high NPA write-offs while the insurance and mutual fund subsidiaries maintained a healthy growth during the quarter.

SBI’s capital adequacy ratio has dipped below the 12% mark and stands at 11.5% as in September 2008, with the Tier-I capital ratio at 8.22%.

At the current market price of Rs1,057, the stock trades at 9.7x 2009E earnings per share, 4.7x 2009E pre-provisioning profit, 1.2x 2009E stand-alone book value and 1.0x 2009E consolidated book value. We shall follow up this note with a detailed analysis soon.

Source : The Sharekhan Research Team