Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
SBI: Core business drives growth - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 1, 2004

    SBI: Core business drives growth

    Introduction to results
    SBI, the largest bank in the country, reported a rather improved quarterly performance for the September quarter relative to its performance over the last few quarters. For 2QFY05, while the bank's topline rose 6% YoY (which is a healthy sign), bottomline witnessed a YoY growth of nearly 9%. There has, however, been a significant improvement in the bank's net interest income highlighting the strength of its core business. There has been a significant fall in other income. However, the same has been compensated by the fall in provisioning. A significantly higher tax incidence has led to the relatively lackluster bottomline performance.

    (Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
    Income from operations 76,139 80,848 6.2% 153,842 157,514 2.4%
    Other income 26,551 16,526 -37.8% 44,080 31,913 -27.6%
    Interest expenses 51,989 47,050 -9.5% 102,845 94,175 -8.4%
    Net interest income 24,150 33,798 39.9% 50,997 63,339 24.2%
    Other expenses 22,092 24,275 9.9% 41,199 48,488 17.7%
    Operating profit 2,058 9,523 362.7% 9,798 14,851 51.6%
    Operating profit margin (%) 2.7% 11.8%   6.4% 9.4%  
    Provisions and contingencies 15,116 7,574 -49.9% 23,032 10,861 -52.8%
    Profit before tax 13,493 18,475 36.9% 30,847 35,903 16.4%
    Tax 3,606 7,657 112.3% 11,956 14,500 21.3%
    Profit after tax/(loss) 9,887 10,819 9.4% 18,891 21,403 13.3%
    Net profit margin (%) 13.0% 13.4%   12.3% 13.6%  
    No. of shares (m) 526.3 526.3   526.3 526.3  
    Diluted earnings per share* 75.1 82.2   71.8 81.3  
    P/E ratio         5.7  

    Largest bank in the country
    State Bank of India (SBI) is India's largest financial entity with an asset size of over Rs 3 trillion. The bank, with its wide network, has diversified business interests including project finance, personal finance, housing finance, mutual funds, investment banking and insurance apart from traditional corporate lending. It is also an active trader in forex and is the leader in cash management services. SBI has a branch network of over 9,000 branches and 1,100 ATMs across the country.

    What has driven the performance in 2QFY05?
    Advances growth encouraging:  SBI despite its size continues to show improvement in its advances growth. Compared to nearly 14% in FY04, the advances growth in 1HFY05 stood at over 24%. The growth in retail advances stood at just over 14% indicating that the bulk of the advances growth in 1HFY05 has come from the corporate segment. The benefits of higher advances growth are visible in the topline performance of the bank. SBI has reported a growth in its topline after 4 quarters of decline in the same. The fall in its yield (from 8.4% to 7.8% currently) on advances is relatively subdued compared to earlier quarters. This has also led to the improvement in the topline. On the other hand, the fall in yield (from 8.7% to 8.0%) on its investment portfolio has been relatively larger.

    Operating margins:  The main highlight of SBI's performance in 1HFY05 has been the growth seen in its net interest income, which has recorded a sharp rise. The bank has indicated that its net interest margin has improved to 3.15% (2.9% in FY04). While the bank has not divulged its cost of deposits, we believe that it must have fallen further in the September quarter. SBI continues to progressively reduce its interest expenses, however, its operating expenses have been rising sharply and have taken a toll on its operating margins. Operating expenses have risen mainly on account of higher contribution to pension and gratuity funds as well as higher overhead expenses. We believe that the bank is likely to face a scenario of rising operating expenses on account of implementation of better technology and higher employee expenses, due to revision in their wages.

    Net Profits:  SBI, like in the June quarter, has significantly reduced its provisioning. The fall has been mainly due to a fall in provisioning for NPAs. However, at the same time, the bank's provisioning for depreciation in value of investments has risen significantly indicating that the bank has been hit by a rise in interest rates. It must be noted that SBI had changed its accounting policy (regarding recognition of value of investments in the available for sale and held for trading category) in the June quarter, which has continued in the September quarter. Due to this, SBI has been able to reduce its provisioning for depreciation in its investments. SBI's net NPAs to net advances ratio stands higher at 3% in 2QFY05, compared to 2.6% in 2QFY04. Lower provisioning has aided the growth in the bottomline. The fall in other income (due to significant fall in profit from sale of investments), despite a 24% rise in other fee based income, has to an extent mitigated this improvement.

    What to expect?
    At Rs 460, the stock trades at a price to adjusted book value multiple of 1.2 times. Overall, SBI's performance has been healthy and we may be witnessing a revival in its core business (lending), which has been subdued since the last four quarters. Considering the rising interest rates scenario, the September quarter results have been encouraging. While the core business growth has been encouraging, there has been a slippage in its asset quality. Investors need to be weary of this aspect (high NPAs) as it has been one of the reasons for the consistently low valuations SBI has seen over the years.



    Equitymaster requests your view! Post a comment on "SBI: Core business drives growth". Click here!


    More Views on News

    SBI: Asset Quality and Slow Credit Remain Achilles' Heel (Quarterly Results Update - Detailed)

    Aug 22, 2017

    State Bank of India (SBI) continues to battle sliding asset quality and sluggish credit growth.

    Insider at It Again. This Time Stealing from Buffett and Berkshire (The 5 Minute Wrapup)

    Aug 12, 2017

    What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

    The Pied Pipers of 'Buy High, Sell Higher' (The 5 Minute Wrapup)

    Jul 14, 2017

    What should you make of Ola drivers turning day traders and Radio Jockeys giving opinion on the Sensex?

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 24, 2017 01:11 PM



    Detailed Quarterly Results With Charts