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SBI: Modest profits, check on slippages - Views on News from Equitymaster
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SBI: Modest profits, check on slippages
Aug 21, 2015

State Bank of India (SBI) declared its results for the first quarter of the financial year 2015-16 (1QFY16). The net interest income for the quarter grew by 3.6% YoY and the profitability was up by 10..3% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income has grown by a tepid 3.6% YoY in 1QFY16, due to a relatively subdued 6% YoY growth in advances even as deposits showed a 13.7% jump.
  • Other income however rose by 19.7% YoY in 1QFY16.
  • NIMs (net interest margins) remained stable at 2.99% in 1QFY16 as compared to 3.13% in 1QFY15.
  • Net NPAs (Non Performing Assets) ratio has reduced from 2.66% in 1QFY15 to 2.24% in 1QFY15 on lower slippages.
  • Net profit has grown by modest 10.3% YoY on the back of higher treasury income and lower tax charges. Provisions increased by 14.4% during the quarter.
  • Capital adequacy ratio stood at 12% at the end of 1QFY16 as per Basel III norms.

Standalone Financials
Rs (m) 1QFY15 1QFY16 Change
Interest income 364,871 396,429 8.6%
Interest expense 232,349 259,109 11.5%
Net Interest Income 132,522 137,320 3.6%
Net interest margin (%) 3.13% 2.99%  
Other Income 42,521 50,880 19.7%
Other Expense 87,166 96,179 10.3%
Provisions and contingencies 34,967 39,997 14.4%
Profit before tax 52,910 52,024 -1.7%
Tax 19,419 15,099 -22.2%
Profit after tax/ (loss) 33,491 36,924 10.3%
Net profit margin (%) 9.2% 9.3%  
No. of shares (m)   7566.2  
Book value per share (Rs)*   162.5  
P/BV (x)   1.7  
* (Book value as on 30th June 2015)

What has driven performance in 1QFY16?
  • SBI has posted a modest 10.3% growth in profits in 1QFY16 backed by robust growth in non-interest income, controlled increase in provisioning and lower tax outgo. The net interest income grew by a subdued 3.6% due to a slower growth in interest on loans. Gross advances were up by a mere 6.6% during the quarter. However, the bank recorded a 19.7% jump in other income backed by a 12.9% increase in fee based income during the quarter. The provisions were up by 14.4% for the quarter. The tax incidence fell to 29% in 1QFY16 from 37% in 1QFY15.

  • The deposits for the bank grew by 13.7% YoY led by term deposits that grew by 18% during the quarter. The savings bank and current bank accounts increased by 10% YoY and 8% YoY. The CASA ratio increased to 43.5% in 1QFY16 as compared to 41.7% in 1QFY15.

    Modest growth in business
    (Rs m) 1QFY15 1QFY16 Change
    Advances 12,322,880 13,137,350 6.6%
    Deposits 14,189,150 16,135,450 13.7%

  • The operating efficiency for the bank was under pressure on account of a steep 17.8% YoY jump in overhead expenses even as staff expenses grew by a 6% YOY during the quarter. The cost-to-income ratio increased to 51% in 1QFY16 as compared to 49.8% in the year-ago quarter.

  • The bank's NIMs remained static at around 3% for the quarter as cost of deposits remained unchanged at around 6.3%. But the yield on advances has come off slightly to 10.3% in 1QFY15 as compared to 10.5% in 1QFY15. As per the bank, the re-pricing of deposits takes time.

  • There has been a marked improvement in asset quality with gross NPAs down by 6.6% to Rs 564.2 m in 1QFY16. This has been on the back of lower slippages and write-offs. The slippage ratio declined to 2.2% in 1QFY16 as compared to 3.2% in 1QFY15. Even the net NPAs have fallen by 10% to Rs 28.7 m. Resultantly, the net NPA to total advances ratio has reduced to 2.24% in 1QFY16 as compared to 2.66% in 1QFY15.
What to expect?

At the current price of Rs 281, the stock is valued at 1.4 times our estimated FY18 adjusted book value.

SBI has witnessed an improvement in asset quality on a reduction in slippages. As per the bank, the stock of NPAS in the Mid corporate Group (MCG) has come down and even the slippages have come down. The credit growth has been subdued as the need for working capital is depressed due to falling commodity prices and even the project pipeline has become thinner curtailing the demand for term loans. As the economy recovers, the bank expects the deposits lying in the treasury book to start contributing to interest income translating into better NIMs. Going ahead, the bank wants to focus on the retail and MCG segments. Nevertheless, given the size of restructured loan portfolio, its valuations continue to warrant caution. Therefore, we reiterate our view that investors should consider buying the stock at lower levels.

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