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State Bank of India (SBI) | Q2FY14 First Cut Analysis




IndiaNivesh Securities Pvt Ltd


13 Nov 2013





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State Bank of India (SBI) | Q2FY14 First Cut Analysis NII in line with expectations, but increase in provisions leads to net profit down Net Interest Income (NII) increased at a healthy rate of 12% y-o-y (as against 8% y-o-y expectation) and 7% q-o-q to Rs 123 bn. It was on account of 15% y-o-y (+7% q-o-q) increases in interest income and 16% y-o-y (+7% q-o-q) increase in interest expense. Non Interest Income reported de-growth of 2% y-o-y (-27% q-o-q) to Rs 33 bn. It may be due to q-o-q decline in treasury income. Operating expenses increased 32% y-o-y (+9% q-o-q) to Rs 92 bn mainly due to 36% y-o-y increase in employee cost. Total Provisions increased 6% q-o-q (up 66% y-o-y) to Rs 30 bn. The increase in provision can be due to increase in restructured assets and provisions on investment depreciation. As a result, net profit of SBI decreased 35% y-o-y (-27% q-o-q) to Rs 24 bn in Q2FY14. Valuation: SBI’s Q2FY14 result was in line with expectation and asset quality was also stable as it shows only slight deterioration. The increase in restructured assets will remain area of concern. At CMP of Rs 1,700, the stock is currently trading at (consolidated) P/ABV of 1.2x and 1.1x for FY14E and FY15E respectively. We continue to recommend BUY on SBI with target price of Rs 1,926 (P/ABV of 1.3x for FY15E). We will come out with detail result update report after the analyst meet which is scheduled today, i.e. November 13, 2013.

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