Buy State Bank of India; target of Rs 2270: Angel Broking

Angel Broking is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target of Rs 2270 in its August 10, 2012 research report.

“During 1QFY2013, State Bank of India (SBI) reported a standalone net profit of `3,752cr as against `1,584cr in 1QFY2012, which was in line with our estimates. The operating income growth was however lower than our expectations. A sharp surge in gross and net NPAs (up by 18.9% qoq and 28.5% qoq respectively) was the key negative.”

“During 1QFY2013, the bank’s advances grew by 18.9% yoy, while deposits were up by 16.1% yoy. Domestic saving deposits growth was moderate at 13.4% yoy while current account deposits declined by 2.9% yoy. The domestic NIM of the bank was lower by 42bp qoq on account of interest rate reversals, lower lending rates (SME and agri rates lowered by 50- 350bp effective June 01, 2012), and higher cost of deposits during the quarter (up 29bp qoq to 6.2%). The performance on the fee income front was muted with other income excluding treasury declining by 2.6% yoy. The growth in CEB income was flat yoy, while dividend income was lower at `18cr compared to `228cr in 1QFY2012 (interim dividend from subsidiaries not taken this year). On the asset-quality front, the bank’s annualized slippage ratio for the quarter surged sharply to 5.0%, significantly higher than 2.3% witnessed in 4QFY2012. The gross and net NPA ratio rose upwards by 18.9% and 28.5% qoq respectively. The PCR of the bank declined by 381bp qoq to 64.3%.”

“The asset quality of the bank has been witnessing pressure for quite some time now and with the slowdown in economic growth and persistent inflation levels pointing towards further economic stress, cyclically, the next six to nine months are likely to be challenging for the bank. However, at the current market price, the stock is trading at 1.2x FY2014E ABV (adjusting for value of subsidiaries 1.0x FY2014E ABV) vis-à-vis its historic range of 1.3–2.3x and median of 1.6x. Also, considering the bank’s dominant position and reach, high fee income and superior earnings quality, we feel the stock is a value buy from a 18-24 month perspective. Hence, we recommend a Buy on the stock with a target price of `2,270, though the returns are likely to be back-ended in nature. Moreover, from a value buying perspective some of SBI’s peer PSU large banks are trading at relatively cheaper valuations,” says Angel Broking research report. 

Public holding more than 90% in Indian cos

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