Hold State Bank of India: Emkay

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Hold State Bank of India: Emkay

Emkay Global Financial Services has recommended hold rating on State Bank of India (SBI) with a target of Rs 1950, in its February 13, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on State Bank of India (SBI) with a target of Rs 1950, in its February 13, 2012 research report.

"SBI Q3FY12 NII at Rs114.6bn was significantly ahead of our / street estimates. The NII growth at 27% yoy (10% qoq) was led by healthy 16.5% yoy growth in loan portfolio and 44bps yoy expansion in NIM to a multi-quarter high of 4.05%. However, lower non-int inc. (primarily due to equity losses and forex gains) dragged overall income growth. Asset quality came in negative with GNPA / NNPA up 17%+ qoq each. Gross slippages for Q3 came in at Rs81.6bn or 3.6% annualized. Resultant, LLP charges stood at Rs30bn or 1.4% annualized. However, with steady Opex and tax rate, net profit at Rs32.6bn (up 15% yoy and 16% qoq) was inline with our estimates. On the balance sheet front, a whopping 7% qoq growth in loan portfolio came in as +ve surprise. Further, with mere 3% qoq growth in deposits, LDR expanded 330bps qoq to 84.5%. During Q3, with a view to free-up its capital, the bank had transferred part of its loan portfolio to ECGC and credit guarantee scheme. This has provided beneficial as despite 5%/7% qoq growth in balance sheet / loan portfolio, tier I capital increased by 12bps qoq to 7.6%. In a recent move, GoI has approved the much awaited capital infusion to the tune of Rs9.7bn. This would further enhance the tier I capital and aid balance sheet growth."

"CASA ratio for the bank at 47.5% is the highest in the Indian banking industry. During Q3FY12, CASA deposits for the bank were up 12% yoy (3% qoq) against 14% yoy (3% qoq) growth in total deposits. The bank has had no major impact due to savings bank deregulation. This is clearly evident as SA deposits grew 4% qoq and comprised 39% of total domestic deposits. Non-int income at Rs21bn was down 36% yoy (38% qoq). Growth in fee income came in at mere 2% qoq and 7% yoy. However, adjusted for one-offs in Q3FY11, growth in fee income stood at healthy 25% yoy. During Q3, the mgmt booked a loss of Rs8bn towards equity investment, which is one-offs and unlikely to repeat in coming quarters. Even forex income at mere Rs2.8bn was down 40% qoq. Q4 is typically a strong quarter and the mgmt has guided for non-interest income growth in sync with balance sheet growth."

"Q3FY12 was operational a strong quarter with healthy NII and loan growth, highest NIM and profitability. Lower non-interest income was a one-off and we expect the growth rate to be in sync with balance sheet since Q4. Further, while there was disappointment on the asset quality front, the mgmt is confident of lower net slippages going forward. Also, with capital infusion in Q4 + plough back of profits, we expect tier I capital to inch upwards to 9% from 7.6% now. At CMP, the stock trades at 1.3x FY13 consolidated banking operations We have raised our EPS estimates by 8%/2% each for FY12/FY13E due to lower tax rate assumptions. Limited capital with increasing pressure on NPA had been a drag on profitability and growth for the bank until now. However, capital infusion with mgmt commentary on lower accretion in NPA signals optimisms. Upgrade to HOLD with price target of Rs 1950," says Emkay Global Financial Services research report.

Institutional holding more than 40% in Indian cos

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