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Spark Capital: State Bank of India Outlook post 1QFY15 Result [Rating: SELL, TP: 2090]




Spark Capital Advisors(India) Private Limited


12 Aug 2014





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State Bank of India Outlook post 1QFY15 Result [Rating: SELL, TP: 2090] How does our one year outlook change? We retain our negative outlook on SBIN with sedate margins, poor asset quality and lopsided growth to the lower yielding large corporate and overseas books being the primary concerns. Maintain SELL with a TP of Rs. 2090 at 1.1x FY16E ABV. With wholesale deposits falling to 8% of the deposit base and an expected CASA ratio of 42% for FY15 we foresee limited room for margin improvement on the liabilities front; on the assets side continued focus on the lower yielding corporate book (42% of incremental yoy credit) should balance out an uptick in overseas NIMs, resulting in overall margins of 3.2% for FY15, the same level as FY14. We expect no improvement in asset quality, factoring in continued stressed asset formation (incremental slippages+restructuring) of 4.5% over FY15 (slippages at 3.3%). Accordingly, we maintain credit costs at 120bps for FY15, although we estimate ~Rs.8.3bn of investment diminution provisioning write-back leading to a 3% yoy drop in overall non-tax provisions. Continue to estimate a 7% yoy opex increase, estimated 7% other income growth should lead to a 50% CIR for FY15 (53% in FY14). Estimate 15% yoy growth in loan book for FY15 with 65% of incremental credit coming from the international and large corporate books. With a tax rate of 33% for FY15, we expect RoAs of 0.8% for the year, estimate RoEs at 11.7%. How does our 3 year Outlook change? We expect SBIN to deliver 1.1% RoA by FY18 led by ~500bps decline in cost to income ratios over a 3 year period as unamortised wage expenditures wear off in FY15. Expect large corporate and overseas books to account for 40% of the loan book against 37% at present, liability profile to remain unchanged with CASA stagnant at ~43%. We expect overseas margins to inch upwards to 1.4% and expect overall NIMs to reach 3.3% by FY18. Net NPAs to gradually taper to 1.7%, with slippages dropping to 2% from 3% at present resulting in credit costs dropping to ~80bps against 120bps now. Estimate ~Rs.160bn in capital infusion to be BASEL III compliant

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