SBI's record breaking jump in profits in FY00 - Views on News from Equitymaster

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SBI's record breaking jump in profits in FY00

Jun 23, 2000

India's largest commercial bank State Bank of India (SBI) recorded a fantastic 100% YoY jump in its net profits to Rs 21 bn in FY00. Higher business volumes and better efficiency has enabled the bank to record increase in profits and higher margins of 9.2%.

(Rs bn) FY99 FY00 Change
Interest Income 191 222 16.2%
Other Income 33 36 8.7%
Interest Expenses 130 153 17.1%
Operating Profit (EBDIT) 61 69 14.3%
Operating Profit Margin (%) 31.7% 31.2%  
Other Expenses 59 63 6.8%
Provision & contingencies 24 22 -11.2%
Net Profit 10 21 99.6%
Net profit margin (%) 5.4% 9.2%  
Earning per share 19.54 39.01  

During the FY00, the bank has written back excess provisions of Rs 3.2 bn for investment depreciation. This has also contributed in increase in the profits. After excluding this provision the growth in the net profits stands at 70%. Non performing assets of the bank during the year declined to 6.4% of net loans against 7.2% in the previous year. The capital adequacy ratio of the bank is at 11.5%. The company plans to increase the ratio to 12% by augmenting its tier-II capital (through subordinate debt).

SBI has shortlisted 19 prospective partners for the planned 74:26 joint venture in insurance. It plans to foray into the areas of life insurance and pension management business. SBI's key strength are its powerful brand equity alongwith wide branch network base, extensive retail and corporate customer base, which will assure it a success in this business. The company also plans to enter the securities market and set up an information bureau in partnership with HDFC, Dun & Bradstreet and Transunion.

SBI has taken a decision to set up a 100% IT subsidiary which would make forays into e-commerce, e-trading and e-broking and also provide software solution for the banking industry. The company has planned to introduce net banking by the end of this year and would further increase its ATMs and number of networked branches.

At the current market price of Rs 230, SBI is trading at PER of 5.9 times its FY00 earnings with Price/Book value ratio of 1 times. The bank's valuations are comparatively lower than that of private sector banks. Once the bank adopts latest technology and lowers its NPA, the re-rating is on the card.

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