See further downside in SBI, says Angel Broking

State Bank of India has declared its first quarter results. Its net profit jumped 136% year-on-year to Rs 3,752 crore.

In an interview to CNBC-TV18, Vaibhav Agarwal, Angel Broking says, the gross non-performing asset (NPA) number has come much above what the management was guiding and the street was expecting. "It would be taken negatively by the market," he adds. He sees further downside on the stock. "There would be some downside. In the next six-nine months, PSU banks will continue to underperform, although not very significantly. Already there has been a correction. From a value point of view, it does not look like there is a significant downside, but overall they should be underperforming," he adds. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar. Q: What is your view? A: Very clearly the gross non-performing asset (NPA) number has come much above what the management was guiding and the street was expecting. The bigger negative is that the net NPAs have shot up by Rs 4,000 crore. We were going with the number of at the most Rs 1,000 crore increase in net NPAs and the street was going with even lower numbers. So, clearly it is a pretty big hit on the net NPA front. So, it would be taken negatively by the market. Q: The net interest income (NII) stands at Rs 11,119 crore. It is lower than what the street was estimating. It turns out to be a growth of about 15% on the NII versus our estimate of a growth of about 20%. Even on the NII, it is lower than what the street was estimating. How would you read the NII figure? A: Clearly, it is well below our estimates as well. I would presume that this would also partly be related to the asset quality itself wherein they must have had good amount of interest reversals in the interest income. So, clearly both those numbers are reflecting the pretty steep asset quality pressure that they faced. Q: What would you want to hear from the management? What are you expecting by way of gross slippages and restructured assets? A: Looking at the way the net NPA numbers have come, it does look like slippages would be somewhere close to between Rs 6,000 crore and Rs 8,000 crore. That is clearly well above what they had done in the last quarter. Restructuring, we will have to see what number they give. But if you go by the trend of other PSU banks, we could well see an increase of Rs 4,000-5,000 crore in that as well. _PAGEBREAK_ Q: Net slippage you say would be about Rs 6,000 crore, right? A: Gross between Rs 6,000 crore and Rs 8,000 crore. Net has been close to around Rs 5,000 crore. Q: What happens to the stock from now on? Q1 asset quality disappoints. With the drought situation, the economy is slowing down, it doesn’t look like the asset quality picture will improve from hereon, perhaps it might even deteriorate, what happens to the stock? What would you do with the stock? A: For the next six months, on various macro parameters, we are seeing negative headwinds, growth coming down, asset quality getting worst, inflation going up and the drought as well. So, all and all, there are no real catalysts for any improvement in the next six-nine months. I think for that period SBI with other PSU banks would remain quite rangebound. Q: Rs 2,790 crore is the provisioning, do you have any idea whether this would give you some worries about the provision coverage ratio? A: Clearly, the provision coverage ratio would have deteriorated simply because the net NPAs have shot up so much. So, I think it would definitely show some deterioration on coverage as well. Q: Do you expect the stock to weaken from here? Do you think there is significant downside for the stock? A: There would be some downside. In the next six-nine months, PSU banks will continue to underperform, although not very significantly. Already there has been a correction. From a value point of view, it does not look like there is a significant downside, but overall they should be underperforming. Q: There was this analysis coming in from UBS today about a significant increase in agricultural NPLs, infact they paint a fairly scary picture of 6%. Do you think it gets as bad as that? A: Yes, looking at the kind of net addition they have had this quarter, if that trend continues, the 6% number is again quite in sight. There is no catalyst for improvement. So, it is quite likely that they may end up closer to those numbers by the end of the year. Q: Do you still see downside? A: I think there will be reduction in estimates for SBI considering the significantly larger net NPAs than estimated by the street. So, I think there could be some further downside from these levels as well in the near-term. Q: When would you maybe even the buy the stock? A: Somewhere close to maybe around 10% lower from these levels, I think it will be a decent value buy.