Sell State Bank of India; target of Rs 1452: Dolat Capital

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Sell State Bank of India; target of Rs 1452: Dolat Capital

Dolat Capital is bearish on State Bank of India (SBI) and has recommended sell rating on the stock with a target of Rs 1452 in its February 13, 2012 research report.

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Dolat Capital is bearish on State Bank of India (SBI) and has recommended sell rating on the stock with a target of Rs 1452 in its February 13, 2012 research report.

"State Bank of India (SBI), business expansion and core interest income broadly in-line with our estimates; operating profit lesser than our expectations due to huge treasury losses on equity book. High NPL build-up required higher bad-debts provision. Write-back of investment depreciation aid bottomline; also lesser tax provisions (on expected lines) succor bottomline. Treasury losses netted-off for investment depreciation write-back dents bottom-line. Tepid core fee income coupled with further rise in NPL erodes SBI's earning quality. Strong margin was the only savior. We maintain our SELL rating on stock."

"In Q3 FY12, State Bank's NII grew by 27% YoY to Rs 115bn- compared to our estimates of Rs 112bn (2.7% higher than our estimates). The bank's margin further rose to 4.05% from 3.8% in Q2 FY12. The bank recorded bottom-line growth of 15% YoY to Rs 32.6bn compared to our estimates of Rs 33.5bn (2.6% lesser than our estimates). On asset quality front, the bank's GNPL went up further to 4.6% (from 4.2% in Q2 FY12) mainly due to high slippages of Rs 82bn (compared to Rs 83bn in Q2 FY12). On recovery & upgradation front, the bank recorded marginal improvement with Rs 19.7bn recoveries. The bank's restructured loan book further rose to Rs 376bn and total slippages from the loan book increased to 26% till end-Q3 FY12 from 22% till end-Q2 FY12. The bank's performance does not elicit any respite on asset quality front."

"We maintain our negative view on the stock considering tepid core fee income, worsening of asset quality and lower core capital. In 9M FY12, the bank's core fee income remained flat at Rs 79bn. Further rise in GNPL and higher slippages from restructured loan book eroded earning quality. Even with expected central government equity capital infusion of Rs 79bn by end-FY12, the bank would have raise equity capital again by end-FY13 capping return ratio. We maintain our SELL rating on the stock with a target price of Rs 1,452," says Dolat Capital research report.  

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To read the full report click on the attachment