Analyst Research Report Snapshot

Title:

State Bank of India (SBIN) - Visit Note - Dtd. - October 12, 2012

Price:

$12.00

Provider:

Axis Capital Limited

Date:

12 Oct 2012

Pages:

2

Type:

AcrobatPDF

Companies referenced:

SBI.NS

Available for Immediate Download
Summary:

We met the management of SBI. Key takeaways: YTD credit growth is flat, which is likely to impact NIM (by ~10 bps QoQ in Q2FY13E). Stress level is similar to what it was in past few quarters, though Q2 slippages would be below Q1 level of Rs 108 bn. Restructuring is likely to remain high in Q2 as the bank has ~Rs 50 bn of pipeline. High stressed assets and lower NIM will remain an overhang on operational performance in Q2. NIM to be under pressure in Q2 due to muted credit demand and also as SBI has reduced lending rates in various segments. Moreover, ~74% of its domestic business is linked to base rate (which was reduced by 25 bps on 20 September 2012) and will impact margin going forward. We expect NIM to decline by ~10 bps QoQ in Q2. For FY13, management is confident of maintaining its NIM at ~3.6% (at Q1 levels) as they re-deploy their low yielding investments. Stressed assets to remain high: Management expects Q2 slippages to be lower than Rs Q1 (we expect Rs 70 bn slippage in Q2), but overall stressed assets are likely to be higher (restructured asset pipeline of Rs 50 bn vs. Rs 5 bn restructured in Q1). Management stated there are no signs of improvement at ground level and slippages are mainly emanating from SME and mid-corporate segment. Going forward, the bank expects revival in capital markets and some reforms getting implemented to lead to improvement in asset quality. Valuation: The stock trades at 1.5x FY13E ABV of Rs 1,139 and 1.4x FY14E ABV of Rs 1,294 (ex value and cost of investment). Maintain HOLD with TP of Rs 2,084 [1.2 x FY14E ABV (adj. for value and cost of invt) + Rs 511 value of invt] The stock may remain under pressure in near term due to poor growth, pressure on margin, and higher restructuring. Our TP implies 8% downside from CMP of Rs 2,269 Regards, Praveen Agarwal (Executive Director – BFSI) Institutional Equity Research ENAM Securities Pvt. Ltd. Tel.: + 91 22 4325 1102 Namesh Chhangani (AVP – BFSI) Institutional Equity Research ENAM Securities Pvt. Ltd. Tel.: + 91 22 4325 1127 Deepak Agrawal (VP – BFSI) Institutional Equity Research ENAM Securities Pvt. Ltd. Tel.: + 91 22 4325 1133

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