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SBI: Resilient in face of turmoil - Views on News from Equitymaster
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SBI: Resilient in face of turmoil
May 11, 2009

Performance summary
  • Interest income grows by 30% YoY in FY09, 28% YoY in 4QFY09.
  • Other income grows by 46% YoY in FY09 as the bank reaped the benefits of drop in interest rates in the SLR portfolio.
  • Provisions increase by 40% for the full year.
  • Cost to income ratio drops to 46.6% in FY09 from 49% in FY08. The ratio would have been at around 42% for FY09 but for the wage and pension provisions.
  • Capital adequacy ratio at 14.25% at the end of FY09; net NPAs at 1.76%, from 1.78% at the end of FY08).
  • Recommends dividend of Rs 29 per share (dividend yield of 2.2%)


Rs (m) 4QFY08 4QFY09 Change FY08 FY09 Change
Interest Income 135,767 173,424 27.7% 489,503 637,884 30.3%
Interest Expense 87,761 125,005 42.4% 319,291 429,153 34.4%
Net Interest Income 48,006 48,419 0.9% 170,212 208,731 22.6%
NIM (%)       3.1% 2.9%  
Other Income 28,172 47,182 67.5% 86,949 126,908 46.0%
Other Expense 32,447 42,831 32.0% 126,086 156,487 24.1%
Provisions and contingencies 16,191 13,777 -14.9% 26,687 37,346 39.9%
Profit before tax 27,540 38,994 41.6% 104,389 141,807 35.8%
Tax 8,707 11,571 32.9% 37,098 50,594 36.4%
Profit after tax/ (loss) 18,833 27,423 45.6% 67,291 91,212 35.5%
Net profit margin (%) 13.9% 15.8%   13.7% 14.3%  
No. of shares (m)       631.5 634.9  
Book value per share (Rs)*         912.7  
P/BV (x)         1.5  
* (Book value as on 31st March 2009)

What has driven performance in FY09?
  • Led by a nearly 30% YoY growth in its advance books, SBI managed to grow its interest income by an equivalent rate during FY09, thereby showing resilience in the face of overall economic turmoil. The overall growth in advances was led by the bankís international books as advances at its foreign branches (16% of total advances) grew by a whopping 54% YoY. The bank also gained from a higher yield on advance, which stood at almost 10.2% in FY09 as against 9.9% in FY08. Based on segments, SBIís advances to large corporates grew by 47% YoY while those to mid and small corporates grew by 23% YoY and 26% YoY during the fiscal. The bank also saw a robust growth in advances to the retail segment as its housing, auto, and education portfolios recorded growth of 21%, 36%, and 50% respectively. The overall growth in advances was lower than in deposits, particularly due to lower growth in disbursements to retail and agri-credit segments.

    Profile of advances and deposits
    (Rs m) FY08 % of total FY09 % of total Change
    Advances 4,223,310   5,485,400   29.9%
    Agriculture 457,970 10.8% 546,780 10.0% 19.4%
    Retail 972,550 23.0% 1,189,700 21.7% 22.3%
    SME, Mid corp. 1,763,760 41.8% 2,197,590 40.1% 24.6%
    Large corporates 467,070 11.1% 688,660 12.6% 47.4%
    International 561,960 13.3% 862,670 15.7% 53.5%
    Deposits 5,225,890   6,963,400   33.2%
    CASA 2,236,270 42.8% 2,733,960 39.3% 22.3%
    Term deposits 2,989,620 57.2% 4,229,440 60.7% 41.5%
    Credit/Deposit 80.8%   78.8%    

  • SBIís other income grew by a substantial 46% YoY during FY09. This was largely on account of a 32% YoY growth in its fee income (69% of total other income), which was led by higher commissions, brokerage, and loan processing fees. The growth in other income was also aided by gains in the investment portfolio, as profit on sale of investment grew by a whopping 171%.

  • SBIís cost to income ratio dropped to 46.6% in FY09 from 49% in FY08. This ratio would have been at around 42% for FY09 but for the higher provisions that the bank had to make for wages and pensions. SBI added around 30,000 new employees in FY09 and its branch strength increased by 800.

  • SBIís net NPAs stood at 1.78% at the end of March 2009 as compared to 1.76% at the end of March 2008. For FY10, the bank foresees potential NPAs arising in the real estate and SME sectors. The management has indicated that a large part of the rise in domestic NPAs was on account of the loan to Ratnagiri Gas and Power Pvt. Ltd, and the bad loans taken over from State Bank of Saurashtra.

What to expect?
At the current price of Rs 1,325, the stock is trading at a multiple of 1.2 times our estimated FY11 standalone adjusted book value. SBIís interest income for FY09 has been exactly in line with our estimates. However, given the 30% higher other income as compared to our estimates, the reported net profit is higher by 15% than our estimates. SBIís management has indicated that the bank will raise capital in FY10 to prop up its capital adequacy, as it is targeting a loan growth of 25% for the fiscal. Also, the management expects net profits to grow by 40% YoY during FY10 and net interest margin to be at 3%.

SBIís balance sheet growth continues to remain ahead of the industry due to its widespread rural and semi-urban presence. The bank has also maintained reasonable provisioning for possible slippages. Although we anticipate lower growth and muted margins in the near term, the bank, given its balance sheet size, penetration and the possibility of merger with associates remains a preferred play for the long term. We maintain our view on the stock from a 2 to 3 years perspective.

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