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SBI: OPM to the rescue… - Views on News from Equitymaster
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  • Oct 30, 2002

    SBI: OPM to the rescue…

    State Bank of India (SBI) recorded a strong 30% growth in bottomline during the second quarter ended September 2002, aided by strong improvement in operating margins. The bank's interest income however, witnessed a single digit growth of 6% during the September quarter (same as in June quarter). Slowdown in industrial activity has impacted the bank's corporate loan disbursements.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Income from operations 74,327 78,596 5.7% 145,741 153,954 5.6%
    Other Income 10,135 11,328 11.8% 20,040 21,673 8.2%
    Interest expense 52,562 54,496 3.7% 102,519 105,698 3.1%
    Net interest income 21,765 24,100 10.7% 43,223 48,257 11.6%
    Other expenses 17,506 18,143 3.6% 34,239 35,485 3.6%
    Operating Profit 4,259 5,957 39.9% 8,984 12,772 42.2%
    Operating Profit Margin (%) 5.7% 7.6%   6.2% 8.3%  
    Provisions and contingencies 4,519 4,404 -2.5% 9,146 9,182 0.4%
    Profit before Tax 9,875 12,881 30.4% 19,878 25,263 27.1%
    Tax 3,436 4,529 31.8% 7,641 9,279 21.4%
    Profit after Tax/(Loss) 6,439 8,352 29.7% 12,236 15,984 30.6%
    Net profit margin (%) 8.7% 10.6%   8.4% 10.4%  
    No. of Shares (m) 526.3 526.3   526.3 526.3  
    Diluted Earnings per share* 48.9 63.5   46.5 60.7  
    P/E Ratio   3.6     3.8  

    Interest income from advances saw a recovery in growth (3.7%). Though the growth rate was small, performance was better than in June quarter, where it saw over 1% dip in interest on advances. On the other hand, income from investments growth slowed down in 2QFY03 to around 4% YoY, as compared to a 9% growth during the June quarter. This is because the incremental investments would have been at a significantly lower yield. The bank's aggressive foray into retail financing market could help in saving the topline growth in the coming quarters. The bank is facing stiff competitive pressure on its forex and cash management services business.

    Income break-up
    Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Interest on advances 27,786 28,818 3.7% 56,326 56,945 1.1%
    Income on investments 35,777 37,126 3.8% 68,854 73,242 6.4%
    Interest on bal with RBI 7,555 9,119 20.7% 14,347 17,524 22.1%
    Others 3,209 3,533 10.1% 6,214 6,243 0.5%
    Total 74,327 78,596 5.7% 145,741 153,954 5.6%

    During the quarter, the bank's operating margins improved with lower cost of funds and savings on employee cost. An 11% growth in net interest income and a reduction in cost to income ratio to 51.2% (from 55% in 2QFY02) suggest strength in the bank's financial performance. Lower non-performing loan provisioning further contributed in fueling the bottomline growth.

    Please note that we have compared this year's performance with last year's stated numbers. SBI seems to have restated some last year numbers and as such is reporting a 34% growth in 2QFY03 bottomline. We haven't received the company's press release as yet. Therefore, we have reported the performance based on the data available with us.

    At the current market price of Rs 231, SBI is trading at a P/E of 3.8x 1HFY03 annualised earnings and adjusted price to book value ratio of 1.4x. Due to the cut in bank rate and CRR in the interim monetary policy, SBI too has cut its deposit rates for customers. This may increase its spreads atleast in the short term. But concerns of growth in the bank's loan portfolio could curtail the bank's earnings growth going forward, despite a strong improvement in operating margins.



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