Banking major State Bank of India reported net profit fall of 35 percent year-on-year to Rs 2375 crore, a bigger fall than what the market was expecting. Reacting to the state-owned bank’s numbers Vaibhav Agrawal, Angel Broking believes the earnings were in line with expectations. The recovery at Rs 4,000 crore is broadly inline and the fact that it has come in much lower sequentially, should be seen positively, he adds.
However, Suruchi Jain of Morningstar is disappointed with SBI’s results. According to her, apart from operating expenses the total revenues have also come in slightly weaker which is pushing up the operating expenses to net revenue ratio. She believes PSU banks will continue to underperform compared to private sector banks and would prefer buying HDFC Bank or Axis Bank.
“We continue to keep our very high uncertainty rating on the stock because in the last couple of quarters there has been more bad news than good news,” she adds.
Below is the verbatim transcript of their interview on CNBC-TV18
Q: What have you made of the gross non-performing loan (NPL) picture, at 5.64 per se a bad number but 8 bps higher? Is it worse than what you thought or better than what you thought?
Agrawal: It is inline with what we were expecting. We were expecting a net slippage of about Rs 5,000 crore, they have done about Rs 4,500 crore so broadly inline, the recovery at Rs 4,000 crore is broadly inline and the fact that it has come in much lower sequentially, should be seen positively.
Q: What would you do with the stock from these levels? It has come to levels of Rs 1,700 and from hereon on the back of the earnings where do you see the stock headed?
Agrawal: Looking at the economic recovery, one has strong confidence on that and a large public sector undertaking (PSU) bank like State Bank of India (SBI) can be looked at considering that their capital adequacy is much stronger than the smaller ones and from that standpoint, one can consider SBI. However, things have improved in this quarter.
Q: Is it the operating expenses that you are looking out for, it has come in at Rs 9,217 crore? Is that way higher than what you were expecting? Last quarter was Rs 8,434 crore, this quarter is Rs 9,217 crore. Is that a matter of concern?
Jain: Yes, it is a bit of a concern for us and overall these are the two key numbers that we look at and while we do not project specific quarters, we were expecting it to come in slightly lower than what it has.
Q: We have got earnings from the three-big public sector undertaking (PSU) banks like Punjab National Bank (PNB) Bank of Baroda as well as State Bank of India (SBI). How would you rate the three purely on the back of earnings and fundamentally where they are headed?
Jain: Unfortunately, among the PSU banks we only cover State Bank of India and cover a couple of other private sector banks. However, on SBI’s earnings, I would like to say that apart from operating expenses the total revenues as well have come in slightly weaker which is pushing up our operating expenses to net revenue ratio which is a key matrix we look at. Therefore, PSU banks as such will continue to underperform compared to private sector banks.
If we were to buy quality, we would rather buy HDFC Bank or Axis Bank which are either fairly valued or trading below our target price, whereas on SBI, we continue to keep our very high uncertainty rating on the stock because in the last couple of quarter there has been more bad news than good news and while we continue to remain hopeful, we will watch the results closely.
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