SBI: Core business drives growth - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

SBI: Core business drives growth

Nov 1, 2004

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)2QFY042QFY05Change1HFY041HFY05Change
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 7,657112.3% 11,956 14,50021.3%
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*75.182.2 71.881.3 
P/E ratio    5.7 
*(annualised)      

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 Announces Quarterly Results (1QFY22); Net Profit Up 44.9% (Quarterly Result Update)

Aug 5, 2021 | Updated on Aug 5, 2021

For the quarter ended June 2021, SBI has posted a net profit of Rs 75 bn (up 44.9% YoY). Sales on the other hand came in at Rs 690 bn (down 1.4% YoY). Read on for a complete analysis of SBI's quarterly results.

India's Largest Bank, SBI Posts Record Profit in Q4 (Views On News)

May 22, 2021

All you need to know about the bank's latest financial results.

SBI Announces Quarterly Results (3QFY21); Net Profit Down 6.9% (Quarterly Result Update)

Feb 5, 2021 | Updated on Feb 5, 2021

For the quarter ended December 2020, SBI has posted a net profit of Rs 52 bn (down 6.9% YoY). Sales on the other hand came in at Rs 667 bn (down 1.4% YoY). Read on for a complete analysis of SBI's quarterly results.

7 Stocks that Mutual Funds Can't get Enough of (Views On News)

Dec 1, 2021

Come hell or high water, these are the top Indian stocks which mutual funds never leave.

5 Indian Banks with the Lowest NPAs. Here's How they Did It... (Views On News)

Sep 27, 2021

These banks have managed to maintain their asset quality even in the middle of a pandemic.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

SBI SHARE PRICE


Dec 2, 2021 11:58 AM

TRACK SBI

COMPARE SBI WITH

MARKET STATS