SBI: An encouraging quarter - Views on News from Equitymaster

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

  • MyStocks


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

SBI: An encouraging quarter

Nov 17, 2014 | Updated on Oct 30, 2019

State Bank of India (SBI) declared its results for the second quarter (2QFY15) and first half (1HFY15) of the financial year 2014-15. The net interest income for the quarter grew by 8.4% YoY while the net profits grew by almost 31% YoY. For the first half, the profits grew 15% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 8.4% YoY in 2QFY15 on the back of a 9.1% YoY growth in gross advances.
  • Other income grew sharply by 39% YoY.
  • NIMs (net interest margins) came down significantly from 3.2% in 1HFY13 to 3.1% in 1HFY14.
  • Net NPAs (Non Performing Assets) fell from 2.9% in 2QFY14 to 2.7% in 2QFY15 thus providing some relief.
  • Net profits grew by a strong 31% YoY on the back of an 8% growth in NIMs and the strong growth in other income.
  • Capital adequacy ratio stood at 12.3% at the end of 1HFY14 as per Basel III norms.

Rs (m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Interest income 339,217 372,626 9.8% 656,401 737,497 12.4%
Interest expense 216,707 239,880 10.7% 418,772 472,229 12.8%
Net Interest Income 122,510 132,746 8.4% 237,629 265,269 11.6%
Net interest margin (%)       3.2% 3.1%  
Other Income 32,782 45,708 39.4% 77,525 88,228 13.8%
Other Expense 92,175 94,234 2.2% 176,524 181,400 2.8%
Provisions and contingencies 30,288 42,750 41.1% 58,946 77,717 31.8%
Profit before tax 32,829 41,470 26.3% 79,683 94,380 18.4%
Tax 9,079 10,465 15.3% 23,522 29,885 27.0%
Profit after tax/ (loss) 23,750 31,004 30.5% 56,161 64,495 14.8%
Net profit margin (%) 7.0% 8.3%   8.6% 8.7%  
No. of shares (m)         746.6  
Book value per share (Rs)*         1449.3  
P/BV (x)         1.9  
* (Book value as on 30th September 2014)

What has driven performance in 2QFY15?
  • Although the company's performance may not appear all that great, it should be noted that since we are coming out of a poor macroeconomic environment, the numbers do look encouraging from that perspective. Having said that, as per the company's own admission, it does not have any magic wand and therefore, the recovery is only going to be gradual.

  • The net interest income grew at decent 10% YoY for 2QFY15 on the back of 9.1% YoY growth in advances during the quarter. While the loan growth stood decent, it failed to translate into healthy margins on account of increased costs and tepid yields. The margins for the whole bank have come down to 3.11% in 2QFY15 slightly lower as compared to 3.19% in the same period a year ago. On account of high rates, subdued business environment and asset quality pressures, the margin pressures stand imminent.

  • The loan growth at 9.1% came in slightly worse as compared to other banks as the market share fell from around 17% to a little over 16% on a YoY basis. The loan book expansion came largely from large corporates (17% YoY growth) and home loans (18.9% YoY growth)

    Large, Mid-corporates and auto advances stay strong
    (Rs m) 2QFY14 % of total 2QFY15 % of total Change
    Advances 11,393,260   12,426,380   9.1%
    Agriculture 1,393,110 12.2% 1,559,430 12.5% 11.9%
    Retail 2,241,680 19.7% 2,492,590 20.1% 11.2%
    Home Loans 1,300,174 11.4% 1,545,406 12.4% 18.9%
    Auto Loans 269,002 2.4% 299,111 2.4% 11.2%
    SME 1,656,860 14.5% 1,680,110 13.5% 1.4%
    Mid Corp 2,220,500 19.5% 2,158,800 17.4% -2.8%
    Large Corporates 1,987,730 17.4% 2,330,120 18.8% 17.2%
    Deposits 12,924,560   14,737,850   14.0%
    CASA 5,262,950 40.7% 5,918,010 40.2% 12.4%
    Tem deposits 6,813,400 52.7% 7,911,250 53.7% 16.1%
    Credit deposit ratio 88.2%   84.3%    

  • The deposits for the bank grew at 14.0% YoY and the term deposits grew at higher rate of 16.1% YoY during 2QFY15. The CASA deposits growth at 12.4% YoY was backed by similar increase both in current account as well as savings account. However, the CASA ratio for the September quarter 2014 fell down to 42.8% from 43.6% a year ago.

  • Highlight of the quarter was the strong show put up by the other income component which managed to grow by a strong 39% YoY during the quarter. The fee income growth came in at 19% YoY whereas the growth for all the other non-core components of other income stood at a robust 120%.

  • The operating efficiency of SBI got a good boost during the quarter. The cost to income ratio for the bank fell from 59% in 2QFY14, which was actually the highest in more than a decade, to a more comfortable 53%.

  • The September quarter of FY15 witnessed an improvement in asset quality of the bank vis a vis the same quarter last year. The gross NPAs fell from 5.6% in September 2014 quarter to 4.9% in the quarter ended September 2015. The net NPAs too have fell to 2.7% in 2QFY15 from 2.9% in 2QFY14. The respite came also on the fresh slippages front, wherein the number declined to Rs 77 bn during 2QFY15 from Rs 99 bn in 1QFY15. Some amount of economic revival seems to have aided in arresting slippages.

  • The provisioning costs also mellowed down a bit, but still going up by 41% YoY during the quarter and 32% YoY during the first half.
What to expect?
At the current price of Rs 2,788 the stock of SBI is trading at 1.5 times the FY17 estimates.

State Bank of India (SBI) definitely has an edge over its PSU banking peers in terms of balance sheet growth and margins. Moreover, it is well placed to exploit the potential that is likely to arise once the investment cycle picks up. And hence deserves a place in the long-term portfolio. However, its asset quality continues to warrant caution. Therefore, we reiterate our view that investors should consider buying the stock at Rs 2,000 or lower.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 18, 2021 (Close)