Accumulate SBI; target of Rs 2450: PLilladher
Prabhudas Lilladher is bullish on State Bank of India (SBI) and has recommended 'Accumulate' rating on the stock with a target of Rs 2,450 in its May 24, 2013 research report.
June 03, 2013 / 18:41 IST
Prabhudas Lilladher's research report on State Bank of India (SBI)
"SBI's Q4FY13 results reinforce the quantum of operational challenges faced by PSU banks which more than offsets some improvement in asset quality trend. PPOP challenges will constrain ROEs at ~15 percent in FY14 despite our expectations of lower slippages. Low gas + less risky infra book provides some comfort on incremental slippages/restructuring.""Operating metrics challenges only increasing: (1) NIMs came in at 3.17 percent, down ~15bps QoQ as lending yields compressed, given the risk-averse lending. With SBI yet to move aggressively on base rates, with the falling rates, we believe margin pressures will remain in FY14 (2) Core fee income contracted 8 percent YoY despite aggressive B/S growth and we see no pick-up in lumpy corporate activity to reverse this trend (3) Growth at +20 percent surprised and despite adding higher investment grade exposures, growth in most sensitive sectors was +20 percent which we see as a risk (4) Opex growth remained sticky with overheads increasing by ~20 percent YoY and salary increasing by ~14 percent despite moving pension proceeds off B/S which would have resulted in lower salary expenses.""Overall asset quality performance was mixed with some improvement in NPA performance. Gross slippages of Rs58bn were better than expected and though momentum on recoveries/upgrades has improved, especially on mid/SME corporates, ~Rs20bn of the Rs47bn of upgrade was linked to restructuring. Restructuring of Rs89bn included three large a/s totaling Rs40bn and management still sees some material pipeline, including TN SEB exposure.""We expect operational challenges to continue in FY14 and we further revise downwards our below consensus PPOP numbers by 4 percent. Limited gas + low risk power book provides us some asset quality comfort and hence, despite the operational weakness, we maintain 'Accumulate' with a PT of Rs 2,450/share," says Prabhudas Lilladher research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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