As the third-quarter earnings season – blighted by a stark deterioration in asset quality for banks – winds down, India’s largest lender State Bank of India came out with a set of earnings that gave the street something to cheer about.
While the bank’s net profit came in below estimates (Rs 2,910 crore versus expectations of Rs 3,254 crore), its gross non-performing asset (GNPA) margin rose from 4.89 percent a quarter ago to 4.9 percent this quarter.
“The lower profit won't hurt the street,” Vaibhav Agrawal of Angel Broking told CNBC-TV18’s Latha Venkatesh and Ekta Batra. “[Looking at results of other banks] we were worried about asset quality,” he said.
Jignesh Shial of IDBI Capital Markets, however, said he would look forward to more details on slippages, which the bank would announce at its earnings conference, to understand the numbers better. Last quarter, the number stood at Rs 7,700 crore and Shial said he sees a similar number this time around.
Terming the numbers as a positive surprise, Suruchi Jain of Morningstar India said that while currently the stock was trading close to fair value in the immediate term, given its strong balance sheet, it was attractive for long-term investors.
Below is the transcript of the interview on CNBC-TV18 on CNBC-TV18.
Ekta: Are you positively surprised with State Bank of India’s numbers?
Agrawal: At the beginning of the quarter, the net profit estimate and asset quality estimate that we had set compared to that the net profit is around Rs 300 crore lower. However, looking at results during the quarter we were worried that the net NPA increase might be much more.
Considering that they have maintained the net NPA ratio just about little bit higher than previous quarter, the Rs 300 crore lower net profit is not going to deter the street much because the net NPA number was where the clear worry was.
Latha: What are your first thoughts on SBI?
Shial: The numbers seem pretty okay. We were concerned on the asset quality front and we discussed this yesterday as well. We will still wait for the gross slippage number and all, so once that clarity comes in then probably we can surely say that numbers look fine.
Latha: What are your first thoughts on SBI?
Jain: I think the NPA ratio has not moved up quite a bit. After seeing ICICI Bank results on specific accounts, they had taken very high provisions and NPAs. I was expecting something similar here and so this is definitely a positive surprise that SBI is not facing similarly large accounts going bad.
Latha: Would you agree that we could see some outsized gains in the SBI stock because it would be underrepresented with most analysts and it would actually attract funds from some of the private sector banks?
Agrawal: That is true. Like you mentioned the valuations are clearly on the lower side at about 1.2 (times book value) adjusted for subsidiaries and this is probably the only PSU bank where even the capital adequacy is strong and they have the ability to raise from the market as well. So, if you combine these facts, it looks quite well placed within the PSU and even within the overall banking sector.
Latha: Any price targets now?
Jain: SBI has been trading very close to our fair value of Rs 278 and it is the only bank that has been close to the fair value whereas most of the private sector banks have traded up quite a bit. So, it is still attractively priced for the long-term and it is a strong balance sheet that I would recommend buying for a long-term perspective.
Ekta: Going by what they have reported this quarter, from the management what are you expecting in terms of slippages, just a ballpark figure, do you expect it maybe at that Rs 6000-7000 crore base case based on what they reported in Q2?
Shial: Last quarter they had reported Rs 7700 crore slippages. Similar kind of number would be there for this quarter as well. So, no negative surprise there that is what the base calculation says right now.
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