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SBI's remarkable profit growth in 1QFY01 - Views on News from Equitymaster
 
 
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  • Jul 27, 2000

    SBI's remarkable profit growth in 1QFY01

    The operating margin growth led the 32.7% jump in the net profits of India's largest commercial bank State Bank of India (SBI). The interest income of the bank increased by 17% to Rs 59 bn due to higher volumes in the business.

    (Rs bn) 1QFY00 1QFY01 Change
    Interest Income 50.8 59.2 16.5%
    Other Income 8.3 8.0 -3.0%
    Interest Expenditure 36.4 40.5 11.3%
    Operating Profit (EBDIT) 14.4 18.7 29.8%
    Operating Profit Margin (%) 28.4% 31.6%  
    Other Expenses 3.2 3.4 4.9%
    Payment & provision for employees 10.5 12.5 18.9%
    Profit before Tax 9.0 10.9 21.1%
    Provisions & Contingencies 3.9 4.2 7.9%
    Tax 1.6 2.0 28.5%
    Profit after Tax/(Loss) 3.5 4.6 32.7%
    Net profit margin (%) 6.8% 7.8%  
    No. of Shares (eoy) (bn) 0.5 0.5  
    Diluted number of shares 0.5 0.5  
    Diluted Earnings per share* 26.5 35.1  
    *(annualised)      

    Advances of the bank grew by 20.8% to Rs 935 bn and deposits increased by 16.5% to Rs 1695 bn. The bank expects the growth rate of 16% in its advances for FY01. However due to 0.75% reduction in the PLR, the average yield on advances declined. As a result interest spread of the bank in the 1QFY01 declined by 20 basis points to 2.7% compared to FY00. The bank will not be affected by 1% interest rate hike announced by RBI in the current year since most of its deposits are in the maturity period over 10 years.

    During the quarter the bank has made higher provision for NPAs as per RBI norms. The provision for investment depreciation increased from Rs 36 m in 1QFY00 to Rs 730 m in the current quarter due to rise in the interest rates. But the bank has not marked to market its investment portfolio for the appreciation in the investment value.

    At the current market price of Rs 197, SBI is trading at a PER of 6 times its 1QFY01 annualised earnings. The bank's Price/Book value ratio of 0.9 times is among the lowest in the banking sector. The reason for its subdued valuations are its high level of NPAs and technology adoption gap. Once the bank improves on this front re-rating is on the card.

     

     

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