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SBI: Deserves a look - Views on News from Equitymaster
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  • Jan 31, 2001

    SBI: Deserves a look

    State Bank of India has reported a drop of 45% in net profit to Rs 2.2 bn for the quarter ended December 2000. However, profit before tax of the bank grew by 16% on the back of higher operating margins and cost efficiencies. Operating margins of the bank during the quarter were higher by 68 basis points due to abolition of interest tax from April 2000.

    (Rs m) 3QFY00 3QFY01 Change
    Interest Income 56,178 64,320 14.5%
    Other Income 8,266 8,306 0.5%
    Interest Expenditure 39,606 44,905 13.4%
    Operating Profit (EBDIT) 16,572 19,415 17.2%
    Operating Profit Margin (%) 29.5% 30.2%  
    Other Expenditure 15,157 16,475 8.7%
    Profit before Tax 9,682 11,246 16.2%
    Provisions & Contingencies 3,635 8,209 125.8%
    Tax 2,042 837 -59.0%
    Profit after Tax/(Loss) 4,005 2,201 -45.1%
    Net profit margin (%) 7.1% 3.4%  
    No. of Shares (eoy) 526 526  
    Diluted Earnings per share* 30.4 16.7  
    P/E (at current price) 7.4 13.5  

    Earnings for the quarter declined due to more than 125% jump in provisions and contingencies. During the quarter SBI has provided an amount of Rs 4.6 bn towards the estimated one time issue expenses of India Millennium Deposits, to be redeemed at the end of five years, in the year 2005-06. These expenses are included in provisions and contingencies.

    SBI's deposits for the nine months period ended FY01 grew by 13% while advances rose by 22%. Credit to deposit ratio of the bank also increased to 57% (from 53% ) during the same period.

    The bank has received more than 27,000 applications for its VRS scheme. However, it has not decided as yet on the manner of absorbing this cost. If it decides to write off the VRS expenses, profits will take a hit in March 2001. Nevertheless, the bank's returns on equity will improve substantially in FY02 and FY03.

    During the quarter, SBI has incorporated a subsidiary SBI Life Insurance Company for doing life insurance business, in which it will hold 74% equity. It has also identified Cardif S.A. of France to be the joint venture partner who will hold 26% equity in the company. The returns from its investments would come only after 3-4 years.

    At the current market price of Rs 226 SBI is trading at a P/E multiple of 4 times its FY02 earnings and Price/Book value ratio of 0.8 times. Its current valuations are lowest among its peers in the sector. With its focus on reducing the level of NPAs and technology adoption, re-rating in the stock is likely.



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