Hold State Bank of India; target of Rs 2366: KRChoksey

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Hold State Bank of India; target of Rs 2366: KRChoksey

KRChoksey has recommended hold rating on State Bank of India (SBI) with a target of Rs 2366, in its February 14, 2012 research report.

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KRChoksey has recommended hold rating on State Bank of India (SBI) with a target of Rs 2366, in its February 14, 2012 research report.

"SBI delivered strong PAT of Rs 3,263 crore above our and street expectation, driven by robust core NII growth, muted OPEX and lower provisions. Net interest income grew strongly 26.7% y-o-y and 10.0% q-o-q driven by 26bps sequential NIM expansion & healthy loan growth 7.3% q-oq. Core fee income marginally increased 1.6% q-o-q, reflecting balance sheet slowdown and skewed pricing towards interest income. Equity market corrected resulting into trading loss of Rs1,063 (22% of PBT) which was partially offset by write back of MTM provision on investment book of Rs870 crore during the quarter. Cost to income ratio marginally inched up 55bps qo- q to 46.6%. Loan loss provisioning continued to be at higher levels (Rs3,006 crore) on account of slippages. Advances and deposits growth were 17.5% y-o-y and 13.9% y-o-y respectively. CASA ratio has been strong at 47.5%. Asset quality deteriorated significantly with slippage ratio 4.2%, the highest among peer banks. Gross and Net NPAs stood at 4.6% & 2.2% respectively with coverage ratio of 62.5%. Consolidated PAT grew 16% y-oy & 24% q-o-q to Rs3,470 crore. Downgrade to HOLD."

"Net interest income showed strong momentum growing 26.5% y-o-y and 10.0% q-o-q driven by 26bps sequential NIM expansion and healthy loan growth 17.5% y-o-y. Yield on advances increased 15bps q-o-q while cost of deposits was contained at 5.90% (up 7bps q-o-q) resulting into 26bps NIM expansion q-o-q. The management sounded confident to sustain current NIM in FY12 as well as FY13. We expect NII to grow 23.1% CAGR over FY11-13. Loan growth has been healthy levels at 17.5% driven by large corporate, international advances and agricultural. Retail loan growth further moderated to 12.8% y-o-y and 3.9% q-o-q reflecting rising interest rates impacting housing and auto loan demand. The management has indicated 16- 18% loan growth and 16-17% deposit growth for the current fiscal. The bank has maintained superior CASA ratio at 47.5% despite challenging macro environment and de-regulation of saving bank deposit rate. CASA Deposits increased 12.0% y-o-y and 2.8% y-o-y reflecting superior power of franchise."

"SBI has delivered strong PAT and core earnings growth during the quarter. Continuous margin improvement, strong CASA ratio, healthy loan growth and better-than-expected bottom line were key positives while higher slippages, trading loss, higher LLP and decline in core fee income were key disappointments from the result. Higher-than-expected slippages due to slowdown in the economy are key investment risk in the stock. At Rs 2,129 the stock is trading 1.4x FY13 core book and 7.9x FY13 core earnings; We Downgrade our investment rating from BUY to HOLD with a target price of Rs 2,366. We believe investors should accumulate the stock below Rs2,000 for medium term investment objective," says KRChoksey research report. 

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment