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SBI: Eyeing loan growth

Jul 30, 2002

State Bank of India's (SBI) first quarter profits spurred by 32% YoY, driven by a strong improvement in operating margins. The bank's interest income however, witnessed a single digit growth of 6% during the June quarter. Slowdown in industrial activity has impacted the bank's corporate loan disbursements.

(Rs m)1QFY021QFY03Change
Income from operations 71,414 75,359 5.5%
Other Income 9,905 10,345 4.4%
Interest expense 49,956 51,202 2.5%
Net interest income 21,458 24,157 12.6%
Other expenses 16,733 17,342 3.6%
Operating Profit 4,725 6,815 44.2%
Operating Profit Margin (%)-11.7%9.0% 
Provisions and contingencies 4,627 4,7783.3%
Profit before Tax10,00312,38223.8%
Tax 4,205 4,75012.9%
Profit after Tax/(Loss)5,7987,63231.6%
Net profit margin (%)8.1%10.1% 
No. of Shares (m) 526.3 526.3  
Diluted Earnings per share*44.158.0 
P/E Ratio 3.9 
*(annualised)   

Interest income from advances continued to slide lower, trimming the overall performance of the bank. However, the reduction was lower compared to a YoY 7% decline witnessed in 4QFY02. The bank's aggressive foray into retail financing market could help in saving the topline growth in the coming quarters. Its investments income also witnessed a single digit growth as incremental investments would have been at a significantly lower yield. Lower treasury gains seems to have impacted its fee-based income also, which was up by a marginal 4%. The bank is facing stiff competitive pressure on its forex and cash management services business.

Income break-up
Rs m)1QFY021QFY03Change
Interest on advances 28,540 28,127 -1.4%
Income on investments 33,077 36,116 9.2%
Interest on bal with RBI 6,792 8,406 23.8%
Others 3,005 2,711 -9.8%
Total 71,414 75,359 5.5%

During the quarter, the bank's operating margins turned into black with lower cost of funds and savings on employee cost. A 13% growth in net interest income and a reduction in cost to income ratio to 50% (from 53% in 1QFY02) suggest strength in the bank's financial performance. Lower tax and non-performing loan provision further contributed in fueling the bottomline growth.

At the current market price of Rs 226, SBI is trading at a P/E of 4x 1QFY03 annualised earnings and adjusted price to book value ratio of 1.4x. Concerns of growth in the bank's loan portfolio and pressure on fee based income could curtail the bank's earnings growth in the current year despite a strong improvement in operating margins.

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