Buy State Bank of India; target of Rs 2380: KRChoksey

KRChoksey is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target of Rs 2380 in its August 13, 2012 research report.

“SBI posted steady net earnings of Rs 3,752 crore growing 136.9% Y-o-Y below our expectation driven by lower-than-expected NII and muted non interest income. NII increased 14.6% Y-o-Y led by healthy loan growth 20.0% y-o-y. Net interest margin contracted 32bps Q-o-Q which pulled down NII 5.0% Q-o-Q. Non interest income was flat Y-o-Y mainly due to weak fee income. Core fee income declined 1.0% Y-o-Y owing to drop in loan processing fees and slowdown in government business.”

“The bank reported trading gains of Rs221 crore vs. Rs26 crore trading loss in Q4FY12, reflecting short term rally in bond & equity markets. Loan loss provision was declined marginally to Rs 2,790cr reflecting persist asset quality pressures. Advances and deposits growth were 20.0% y-o-y and 16.1% y-o-y respectively better than industry. CASA ratio remained at healthy levels 43.0%. Asset quality again showed sharp deterioration largely attributable to higher NPA formation in mid corporate (33% of fresh slippages) and SME (28% of fresh slippages) segments; slippage ratio sharply increased from 2.1% in Q4FY12 to 5.1% in Q1FY13. Gross and Net NPAs stood at 5.0% & 2.2% respectively with coverage ratio of 64.3% (down 560bps Q-o-Q). Upgrade BUY.”

“Net interest income slowed down to 14.6% Y-o-Y led by steady loan growth 20.0% y-o-y. Net interest margins came off 32bps Q-o-Q to 3.57% mainly due to pension funds moved out from banking book, higher slippages, increase in deposits costs (15bps Q-o-Q on calculated basis) and reduction of lending rates in certain loan segments (SME & retail etc). The management has maintained net interest margins guidance at ~3.75% supported by deployment of excess liquidity and strong growth in retail loan book (18-20% in FY13 vs. 12.8% in Q1FY13).”

“SBI has delivered mixed operating performance during the quarter. Sharp deterioration in asset quality and steep contraction in margins were key disappointments from the numbers. We have downward revised our FY13 & FY14 earnings estimates by 6.0% & 5.9% respectively factoring moderation in margins and higher credit costs. We expect SBI to deliver 18.8% CAGR in net earnings over FY12-FY14 driven by steady NIMs, industry line loan growth and improving operating efficiency. Higher-than-expected slippages and credit costs due to further deterioration in macro environment are key investment risks in the stock. At Rs 1,888 the stock is trading 1.1x FY13 core book and 7.1x FY13 core earnings; We upgrade our investment rating on the stock from ACCUMULATE to BUY with a revised target price of Rs 2380,” says KRChoksey research report. 

Public holding more than 90% in Indian cos    

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