Angel Broking neutral on SBI, Canara Bank
Angel Broking has come out with its research reports on State Bank of India (SBI) and Canara Bank and has maintained a 'Neutral' rating on both the stocks in its November 2013 reports.
November 18, 2013 / 15:44 IST
Angel Broking's research report
State Bank of India (SBI)"During 2QFY2014, the bank’s advances grew by a healthy 19 percent yoy, primarily aided by corporate borrowers shifting from commercial papers (CPs) markets owing to higher short term costs (corporate borrowers have now shifted back to CPs and current loan book growth for the bank is ~16-17 percent). Continuing the trend witnessed in the previous quarter, CASA deposits increased at a moderate pace of 10.5 percent yoy, relatively lower than deposits growth of 14.0 percent yoy. As a result, CASA ratio declined by 137bp yoy and 109bp qoq to 43.6 percent. Cost of deposits increased by 7bp qoq to 6.32 percent; however still, domestic margins improved 7bp qoq, primarily aided by 13bp qoq improvement in yields on advance primarily on back of higher CD ratio and lower interest reversals on slippages. Non-interest income (excl. treasury) witnessed a subdued performance, with 2.4 percent yoy decline, dragged by lower forex income. On the asset quality front, net slippages came in at Rs 4,600cr, much lower than Rs 10,850cr in 1QFY2014 and largely in-line with our expectations of Rs 5,000cr. Restructuring during the quarter was elevated at Rs 9,300cr. Unlike last quarter, where slippages came across segments, Midcorporate and SME segments contributed bulk of the slippages (~71 percent) in the quarter under review. Lower net slippages resulted in modest sequential increase in Gross and Net NPA levels of 5 percent and 7 percent, qoq respectively. The PCR remained largely stable sequentially. As per the Management, further restructuring pipeline under CDR stands at ~Rs 6,000cr."Outlook and valuation: "SBI has witnessed elevated asset quality pressure for quite some time now. Given the weak macro environment, we remain cautious on the incremental asset quality pressures for the bank. The bank’s core strength has been its high CASA and fee income, which has supported its core profitability in current challenging times. Its strong capital adequacy also provides comfort. However, in our view, its current valuation of 1.2x FY2015E ABV, factors in most of the structural positives for the bank. Hence, we recommend a Neutral rating on the stock."Canara Bank"During 2QFY2014, the advance book grew strongly by 30.3 percent yoy, while deposits grew healthy at 16.3 percent yoy; hence, the credit-to-deposits ratio for the bank surged 771bp yoy to 71.8 percent. Calculated CASA ratio for the bank increased by 121bp qoq (48bp yoy) to 24.3 percent. The bank’s yield on advances declined 11bp qoq to 10.6 percent, as the bank had reduced its base rate by 30bp to 9.95 percent at the beginning of 2QFY2014. The Reported NIM for the bank remained largely stable sequentially at 2.2 percent. During 2QFY2014, Non-interest income (excluding treasury) witnessed an increase of 32.0 percent yoy to Rs 705cr, primarily on back of higher CEB growth of 57.3 percent yoy at Rs 269cr. Slippages came in at Rs 1,520cr (annualized slippage rate of 2.5 percent) much lower compared to Rs 2,688cr in 1QFY2014. Of the slippages during the quarter, four large corporate accounts contributed roughly Rs 700cr. Recoveries/upgrades came in at Rs 891cr, as compared to Rs 1,359cr in 1QFY2014 and Rs 662cr in 2QFY2013. Sharp loan growth qoq and modest sequential increase in NPA levels, aided the bank to report a sequential decline of 27bp and 18bp qoq, respectively in Gross and Net NPA ratio to 2.6 percent and 2.3 percent. The PCR declined marginally by 41bp qoq to 57.8 percent. The bank restructured loans worth ~Rs 1,000cr during the quarter. Going forward, the restructuring pipeline for the bank remains sizeable at ~Rs 6,500cr (of which ~Rs 3,000cr pertains to discom restructuring)."Outlook and valuation: "Given the backdrop of prevailing macro environment, its high exposure to stressed sectors and the past volatility seen in its asset quality performance, we are skeptical about the sustainability of such performance going ahead, in the near term. Moreover, the bank has unprovided MTM loss of roughly Rs 700cr, which is to be provided equally over the next two quarters. Hence, we maintain our Neutral rating on the stock."
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