Angel Broking neutral on State Bank of India

Angel Broking`s research report on SBI

“SBI reported healthy performance on the asset quality front while operating performance came ahead of our estimates. Slippages for the bank came lower than expectation at Rs7,947cr (annualised slippage rate of 3.0 percent) as against Rs11,438cr in 3QFY2014 (annualised slippage rate of 4.4 percent). Recoveries and upgrades came much higher at around Rs8,443cr against Rs2,768cr in 3QFY2014. On the operating front, NII grew by 16.5 percent yoy (aided by 15.7 percent growth in advances). The opex remained largely flat yoy. PPOP increased by 36.9 percent yoy. But higher provisioning expenses (up 40.9 percent yoy; NPA provision increased by 48.1 percent yoy) coupled with higher tax expense at Rs1,696cr against Rs280cr in 4QFY2013 resulted in earnings de-growth by 7.8 percent yoy to Rs3,041cr.”

“During 4QFY2014, the bank’s advances grew healthy at 15.7 percent yoy, primarily aided by strong loan book growth in international and large corporate advances which grew by 26.8 percent and 38.0 percent yoy respectively, while deposits also grew healthy at 15.9 percent yoy. CASA deposits increased by 10.4 percent yoy, aided by 13.1 percent yoy growth in saving deposits, while current deposits remained largely flat yoy. Domestic NIM remained flat qoq at 3.49 percent. Non-interest income (excl. treasury) for the bank witnessed a healthy performance, with a 16.3 percent yoy increase to Rs6,185cr, aided by fee income and forex gains. On the asset quality front bank reported a healthy performance as slippages came much lower than expectation at Rs7,947cr (annualised slippage rate of 3.0 percent) as against Rs11,438cr in 3QFY2014 (annualised slippage rate of 4.4 percent). Also recoveries and upgrades for the quarter came much higher at Rs8,443cr as against Rs2,768cr in 3QFY2014. Sale of assets to ARCs stood at Rs3,590cr. The Gross and Net NPA ratios during the quarter came lower by 78bp and 67bp qoq respectively to 5.0 percent and 2.6 percent. The PCR for the bank increased by 454bp qoq (372bp yoy decline) to 62.9 percent. Restructuring during the quarter came in sequentially higher at Rs7,636cr as against Rs6,165cr in 3QFY2014. Going ahead the restructuring pipeline stands at Rs3,700cr.”

“The bank has witnessed elevated asset quality pressure for quite some time (though moderation during 4QFY2014). The bank’s core strength has been its high CASA and fee income, which has supported its core profitability in challenging times. Its strong capital adequacy also provides comfort. In our view, its current valuation of 1.3x FY2016E ABV, after adjusting for subsidiaries, factors in the positives for the bank. We recommend a Neutral rating on the stock,” says Angel Broking research report. 

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