Nov 13, 2012, 04.21 PM | Source: Moneycontrol.com
KRChoksey is bullish on State Bank of India (SBI) and has recommended accumulate rating on the stock with a target of Rs 2469 in its November 12, 2012 research report.
, KRChoksey |
“SBI delivered steady net earnings of Rs 3,658 crore growing 30.2% Y-o-Y in line with our expectation. NII increased modestly 5.3% Y-o-Y led by healthy loan growth 17.9% y-o-y. Net interest margin contracted 23bps Q-o-Q which pulled down NII 1.3% Q-o-Q. Noninterest income was down 2.4% Y-o-Y primarily attributable to fall in fee income (5.8%y/y) and forex income (33.5% Y-o-Y) weak fee income. Trading gains came at Rs230 crore vs. Rs221 crore trading gain in Q1FY13, reflecting rally in bond & equity markets. Asset quality continued to see intense pressure largely attributable to higher NPA formation in mid corporate (43% of fresh slippages) and SME (34% of fresh slippages) segments; slippage ratio declined from elevated level of 5.1% in Q1FY13 to 3.8% in Q2FY13.”
“Net interest income slowed down to 5.3% Y-o-Y led by steady loan growth 20.0% y-o-y. Net interest margins came off 23bps Q-o-Q to 3.34% mainly due to 25bps base rate cut, interest reversal on higher slippages and excess liquidity in the balance sheet. The management has maintained domestic net interest margins guidance at ~3.75% (3.68% in Q2FY13) supported by deployment of excess liquidity and healthy growth in retail loan book (18-20% in FY13 vs. 12.8% in Q1FY13). Given the fragile credit growth, systemic lower interest rate outlook, and slower CASA growth, Net interest margin remain under pressure and unlikely to improve in 2HFY13.”
“SBI has reported weak operating performance during the quarter. Worsening of asset quality and steep contraction in margins were key disappointments from the numbers. We have downward revised our FY13 & FY14 earnings estimates by 4.1% & 1.1% respectively factoring moderation in margins and higher credit costs. We expect SBI to deliver 18.2% CAGR in net earnings over FY12-FY14 driven by steady NIMs, industry line loan growth and improving operating efficiency. We believe SBI will benefit immensely from improving macro picture and falling interest regime; in turn growth pick up and receding asset quality pressure. At Rs 2,191 the stock is trading 1.1x FY14 core book and 7.1x FY14 core earnings; We maintain accumulate rating on the stock with a revised target price of Rs 2,469,” says KRChoksey research report.
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