Buy SBI; target Rs 2,194: Angel Broking

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Buy SBI; target Rs 2,194: Angel Broking

Angel Broking is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target price of Rs 2,194 in its November 9, 2011 research report.

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Angel Broking is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target price of Rs 2,194 in its November 9, 2011 research report.

"State Bank of India (SBI)'s standalone net profit increased by 12.4% yoy to Rs 2,810cr (for 2QFY2012), in-line with our estimates. Sequential expansion in domestic (18bp) as well as foreign NIM (7bp) was the major positive from the result. However, fresh slippages of over Rs 8,000cr and lower recoveries and upgrades during the quarter led to gross NPAs shooting up by 22.2% qoq."

"During 2QFY2012, the bank's net advances grew by 2.6% qoq and 16.1% yoy, underpinned by healthy 21.0% growth in large corporate advances, 20.8% yoy growth in SME advances and 19.0% growth in international loan book (9% growth on account of weakening of INR against USD). During the quarter, deposits accretion was moderate at 2.4% qoq (up 13.8% yoy). The bank's NIM increased for domestic (by 18bp qoq to 4.1%) as well as foreign operations (by 7bp qoq to 1.7%) on account of better yields. Non-interest income declined by 14.4% yoy because of lower treasury gains and dividend income (no interim dividend received from subsidiaries as against Rs 253cr received in the last fiscal). On the asset-quality front, the bank's annualized slippage ratio for the quarter rose sharply above 4%+ levels (4.2%) as compared to 3.3% in 1QFY2012. Pressure on slippages was high from the agri, SME as well as corporate segments. The bank provided Rs 550cr during the quarter (Rs 1,100cr for 1HFY2012) for increasing the provision coverage ratio including technical write-offs to the RBI-mandated 70% as of September 30, 2010."

"The stock is trading at 1.2x FY2013E ABV (adjusting for value of subsidiaries). In the near-term the stock is likely to be range-bound due to twin concerns of low CAR and high slippages. That said, in our view, the present valuations provide a good entry point from a 12-18 month perspective, considering the bank's structurally strong core income profile. Hence, we recommend a Buy view on the stock with a target price of Rs 2,194," says Angel Broking research report.

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To read the full report click on the attachment