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Spark Capital: Q3FY13 Result Reviews of State Bank of India




Spark Capital Advisors(India) Private Limited


19 Feb 2013





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State Bank of India - No change in asset quality outlook: Maintain SELL State Bank of India’s (SBIN) 3QFY13 result was marked by a drop in NIMs and core fee income while asset quality woes and related provisioning led to a 7% sequential drop in PAT. Slippages for the quarter were a disconcerting 3.5% (annualised), against 3.1% in 2QFY13 as asset quality stresses in the mid-corporate and SME segments continued-together accounting for ~73% of incremental slippages. Inclusive of incremental restructuring, slippages stood at Rs. 110bn, comparable with the Rs. 118bn witnessed in 2QFY13, putting in perspective the continued deterioration in asset quality. Notwithstanding the upgradation of Rs. 150bn of loans from the restructured category to the standard category, slippages on the FY11 restructured book are at 34% - much ahead of the 20% slippage number on the cumulative restructured pool. Stressed assets are at a disturbing 11% for textiles, 13% for iron & steel, adding to concerns of a 41% yoy growth in power. Given our discomfiture with the bank’s asset quality, we continue to remain negative on the stock and retain a SELL with a target price of Rs. 1757 valuing the standalone bank at 1.2X FY14EABV and subsidiaries at Rs 436/share. Margins declined 10bps qoq (45bps over the last 3 quarters) led by a rise in the low risk-low yield large corporate and overseas advances book; these two segments accounted for 50% of 12month loan growth. Although non-interest income grew 72% yoy, core fee income witnessed a 6% decline, while business growth was strong as advances and deposits grew qoq by 5.5% and 2.0% respectively. We had previously highlighted our discomfort with SBI’s continuing rise in infra, iron & steel, textiles and direct agricultural advances; these sectors accounted for 62% of incremental credit growth over 3QFY12-3QFY13, inexplicable given the stressed asset formation in these sectors. As projected earlier, the projected quantum of restructuring during FY13 (Rs. 120bn inclusive of an estimated Rs.40bn in 4QFY13) is likely to surpass the Rs 92.7bn witnessed in FY12, keeping slippages from the restructured pool high well into FY14.

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