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SBI: Testing competition

Oct 30, 2001

The competitive pressure from private and other public sector banks have negatively affected SBI's second quarter performance. The bank's profits grew by just 6% on the back of a steep drop in operating margins and a substantial rise in provisions.

(Rs m) 2QFY01 2QFY02 Change
Interest Income 62,038 74,327 19.8%
Other Income 9,049 10,135 12.0%
Interest Expenditure 41,756 52,562 25.9%
Operating Profit (EBDIT) 20,281 21,765 7.3%
Operating Profit Margin (%) 32.7% 29.3%  
Other Expenditure 17,462 16,620 -4.8%
Provision for VRS - 886  
Profit before Tax 11,868 14,394 21.3%
Provisions & Contingencies 3,053 4,519 48.0%
Tax 2,758 3,436 24.6%
Profit after Tax/(Loss) 6,057 6,439 6.3%
Net profit margin (%) 9.8% 8.7%  
No. of Shares (eoy) 526 526  
Diluted Earnings per share* 46.0 48.9  
P/E (at current price)   3.8  

Although the bank's interest income clocked a healthy growth of 19.8%, other income growth slowed down. The bank seems to be losing its market share in this revenue stream due to a highly challenging environment. The contribution of other income to total income declined to 12% in the current quarter as against 13% in 2QFY01. During the quarter most banks witnessed a sharp rise in other income figure. Other banks seem to have gained at the cost of SBI.

The bank's other expenses however, remained flat and its cost to income ratio declined to 55% from 60% in 2QFY01. Its VRS plan helped in saving employee cost. During the quarter, its provisions and contingencies figure jumped by 48%. Although the bank is expanding its retail business, corporate loan business still accounts for a major part of its total revenues. With a downturn in industrial activity, the bank made higher provisions on these corporate loans.

At the current market price of Rs 187, SBI is trading at a P/E of 4x 2QFY02 annualised earnings and Price/Book value ratio of 0.7x. SBI is holding its analyst meet today. We will update the report tomorrow when the details about the business performance in first half become available.

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