SBI: Time for re-rating? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

SBI: Time for re-rating?

Apr 3, 2001

The stock price of India’s largest commercial bank, SBI, has been hit by the financial woes of a co-operative bank specializing in bullion trading. (Classic Co-operative Bank issued cheques to four banks including SBI, which subsequently bounced.) The bank is likely to incur damages amounting to Rs 400 m (about 1.5% of its FY01 projected earnings). SBI, however, did not have any exposure to the Madhavpura Mercantile Cooperative Bank, or to stockbrokers being investigated for the recent scam. Baring the above loss, fundamentals of the bank are intact. SBI reported a profit growth of 29% during the nine months ended FY01. Its operating margins also improved substantially by 250 basis points to 31.5%, comparable to the best in the industry.

Outstanding performance
(Rs m)9m FY009m FY01Change
Interest Income 161,252 185,588 15.1%
Other Income 24,371 25,396 4.2%
Total Income 185,623 210,984 13.7%
Operating Profit 71,080 83,818 17.9%
Profits Before Tax 27,137 33,981 25.2%
Profits After Tax 22,036 28,375 28.8%
Provisions & contingencies 11,007 15,500 40.8%
Net Profit 11,030 12,875 16.7%
Equity shares (m) 526 526  

Comparative ratio analysis
Operating Profit Margin31.5%33.0%31.9%40.3%
Net Profit Margin13.4%16.2%15.2%14.6%
EPS (Rs)32.524.07.58.2
P/E (x)6.14.524.127.2
Price/Book Value (x)

SBI has announced job cuts through VRS. This exercise is expected to improve its return on equity in the coming years through savings in employee cost. The bank has recently received approval from IRDA for its foray into life insurance. SBI will have 74% stake in the venture while the Cardiff SA of France will hold the balance. With a branch network of over 9,000 and established customer contact, the bank is expected to generate sizable profits in the future. However, the key remains quality of the services since competition in the sector is mounting with the entry of private players.

At the current market price of Rs 197, SBI is trading at a P/E of 6 times on 9 months FY01 annualised earnings. Its price to book value ratio of 0.7 times is amongst the lowest in the banking sector. Considering the bank’s size, the bullion market default will not impact its financials significantly. Its cost cutting exercise and favourable interest rate environment will be positives for its earnings. Structural reforms promised by the budget will also make it easier to recover bad loans of the bank.

Equitymaster requests your view! Post a comment on "SBI: Time for re-rating?". Click here!


More Views on News

SBI Announces Quarterly Results (1QFY22); Net Profit Up 44.9% (Quarterly Result Update)

Aug 5, 2021 | Updated on Aug 5, 2021

For the quarter ended June 2021, SBI has posted a net profit of Rs 75 bn (up 44.9% YoY). Sales on the other hand came in at Rs 690 bn (down 1.4% YoY). Read on for a complete analysis of SBI's quarterly results.

India's Largest Bank, SBI Posts Record Profit in Q4 (Views On News)

May 22, 2021

All you need to know about the bank's latest financial results.

SBI Announces Quarterly Results (3QFY21); Net Profit Down 6.9% (Quarterly Result Update)

Feb 5, 2021 | Updated on Feb 5, 2021

For the quarter ended December 2020, SBI has posted a net profit of Rs 52 bn (down 6.9% YoY). Sales on the other hand came in at Rs 667 bn (down 1.4% YoY). Read on for a complete analysis of SBI's quarterly results.

7 Stocks that Mutual Funds Can't get Enough of (Views On News)

Dec 1, 2021

Come hell or high water, these are the top Indian stocks which mutual funds never leave.

5 Indian Banks with the Lowest NPAs. Here's How they Did It... (Views On News)

Sep 27, 2021

These banks have managed to maintain their asset quality even in the middle of a pandemic.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 6, 2021 09:22 AM