SBI, the country's largest bank, has announced its FY03 results. The bank has reported a 28% growth in its bottomline on the back of a marginal 4% rise in its topline. SBI's strong bottomline performance for FY03 was led by improvement in net interest income, strong growth in other income and marginal improvement in operating margins. SBIís performance in 4QFY03 however, has been encouraging, which is indicated by the strong 18% rise in the net interest income.
Income from Operations
Net interest income
Operating Profit Margin (%)
Provisions and Contingencies
Profit before Tax
Profit after Tax/(Loss)
Net Profit Margin (%)
No. of Shares (m)
Diluted Earnings per share*
A look at the breakup of interest income shows that there has been a marginal growth in the interest on advances for FY03. As against our earlier estimates of a marginal decline in interest income, the bank has outperformed. That said, the bank still faces a slowdown in credit demand from the corporate segment. However, for the March quarter, the bank has reported a higher growth in interest on advances. This may have been the result of robustness on the retail segment front in the same period. With the corporate segment showing no growth due to economic slowdown, SBI is left with no option but to capitalize on its mass reach by offering retail loans.
Interest on advances
Income from investments
Interest on Balances
SBI has reported a 10% rise in net interest income, which can be mainly attributed to the slower growth of interest expenses. This effect is more profound in the March quarter where the growth in net interest income is stronger at 18%. We observe a fall in interest expenses in the March quarter compared to same period last year. The bank has been able to take advantage of the falling interest rates to reduce its cost of deposits. SBI has an upper hand when compared with competition, due to a large pool of savings deposits. As a result, SBI has been able to improve its operating margins, albeit marginally.
The bank has also increased its provisioning in FY03. This is primarily done in order to improve the asset quality. SBI's net NPAs to advances ratio stood at 5.5% in FY02, which we expect to come down significantly in FY03 post this provisioning. Despite higher provisioning, bottomline has grown by 28% on account of higher other income. Other income growth is expected to be mainly due to profits realised from the bank's G-Sec portfolio.
At Rs 358, the stock is trading at a P/E multiple of 6x its annualised FY03 earnings. The adjustment price to book value (based on net NPAs in FY02) stands at 1.8 times, which is on the higher side for the PSU banking stock. If the March quarter is any indication, the concentration on the retail segment to grow its asset portfolio has paid off. However, slow credit offtake from the industrial sector still has the potential to adversely affect the bank's loan portfolio. Also, competitors are more aggressive and proactive, which could affect SBI's retail asset growth in the future.
Having said that, we continue to remain bullish on the long-term prospects of the bank considering its drive to technologically integrate all its branches, which will lead to improvement in efficiencies further. The only concern at this stage is the frequent change in management at the top and the uncertainty it brings along with it.
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