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Is the market convinced by SBI Q3 nos? The road ahead...

Published on Tue, Feb 14, 2012 at 15:47 | Source : Moneycontrol.com

Updated at Wed, Feb 15, 2012 at 11:48

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Is the market convinced by SBI Q3 nos? The road ahead...

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Saikat Das
Moneycontrol.com

India's banking behemoth the State Bank of India (SBI) posted forecast beating third quarter numbers. A proud SBI boss Pratip Chaudhury proclaimed, " The worst is over !" Even the SBI shares fell more than 2% on the day of Q3 announcement , the market gave a thumbs up on the day after. The shares today closed at Rs 2,200 , up Rs.68 or 3.18% over their previous close on the NSE.

"The asset quality is no longer a big concern," Nilanjan Karfa, senior analyst at Brics Securities, told Moneycontrol.com.

"The healthy growth in net interest margin will keep driving the stock. Amidst slowing down (industry) credit offtake, the bank is expected to post 16% loan growth in FY12. It may go up to 17-18% in FY13," Karfa said, adding that spoilers for the stock could be a lackluster Union Budget and adverse global developments.

In Q3, the lender's loan book expanded more than 17% year-on-year to Rs 8.69 lakh crore; the incremental credit growth (between April and December, 2011) was 12.64%. Net Interest Margin (NIM) also increased to 4.05% compared with 3.8% during the July-September quarter.

"SBI's earnings growth should be better in the coming few quarters. Its operating income will grow well while the provisioning expenses should stabilize in the next 4-5 quarters. However, the asset quality concern is not yet fully over with a pipeline of corporate debt restructuring provisions," said Vaibhav Agrawal, banking analyst, Angel Broking.

The bank has restructured assets worth Rs 1,200 crore on account of Kingfisher Airlines. Hence, it has done away with the required provisions for such restructured scheme. However, it has loaned around Rs 1,300 crore to the debt-ridden Air India (AI), the national career. The SBI does not see any major threat from AI as the government of India is negotiating on the issue.

So, is it the right time to buy SBI?

"The recent run-up (to the stock price) has been too soon, too good. Investors need to wait for a correction. Any buying at the current level is likely to damage your wallet. Foreign institutional investors are currently driving the broader index. With liquidity getting tight in the market, an overall correction is expected in the next one month," Arun Kejriwal, founder of KRISH, a Mumbai-based brokerage firm told Moneycontrol.com adding that the SBI is changing under the leadership of its new chairman - Pratip Chaudhury. The lender has turned out to be investors' friendly and professional entity with a better management team at its helm.

Since December 20, when the stock hit fresh 52-week low at Rs 1,571, SBI shares jumped 40% till date. The escalation, according to market experts, is beyond any reasonability. Meanwhile, the government of India, which holds 59.4% stake in the bank approved a capital infusion plan of Rs 7,900 crore. This too triggered a positive upside for the scrip. Earlier, the rating agency Moody's had downgraded the SBI on the ground of lack of capital support.

While a majority section of market participants seems convinced about the bank's future prospect, some players continues to be skeptical over the SBI's asset quality .

"The key worry continues to be asset quality, and slippages have been stubbornly high at 4% of advances (loans). In our view, the key worry is the large level of non-performing loans seen in agri, SME and the mid-corporate sector," Suresh Ganapathy and Yuvaraj Bhole, the two banking analysts from Macquarie Research said in a report. They have retained their "underperform' rating on the stock with a target price of Rs 1,700 in the next 12 months.

saikat.das@network18online.com