20150813-Maybank_KERPL-Stable_asset_quality,_NIMs_compress_12页_639kb

State Bank of India (SBIN IN) Summary

Core Content

The document provides an analysis of the performance and valuation of the State Bank of India (SBI), one of India's largest public sector banks. It includes insights on financial metrics, asset quality, loan and deposit growth, profitability, and investment recommendations.

Key Financials and Performance Highlights

Share Price and Valuation

• Share Price: INR256
• Target Price: INR350 (up 36%)
• Market Cap (USD): 3.0B
• Average Daily Trading Volume (USD): 67M
• 52-week high/low (INR): 334 / 29
• Free float (%): 41.4
• Issued shares (m): 747
• Market capitalization (INR): 191.5B

Valuation Metrics

• P/BV (x): 1.3 (FY17F)
• LTA P/BV (x): 1.6
• Valuation Discount: 20% below LTA
• SOTP-based Target Price (INR): 350
  • SBI - Parent: 1.5x FY17F adjusted P/BV → INR288 (82% of TP)
  • SBI Associate Banks: 0.9x FY17 P/BV → INR33 (10%)
  • Non-Bank Subs/Associates: INR29 (8%)
  • SBI Life: Appraisal value → INR15 (4%)
  • SBI MF: 5% of AUM → INR3 (1%)
  • UTI MF: 5% of AUM → INR1 (0%)
  • SBI Caps: 10x FY15 EPS → INR5 (1%)
  • SBI DFHI: 1.0x book → INR1 (0%)
  • SBI Cards: 10x FY15 EPS → INR2 (1%)
  • NSE: Based on past deals → INR2 (1%)

Financial Performance (1QFY16)

Income Statement Highlights

• Net Interest Income (INRm): 137,320 (YoY growth: 3.6%, QoQ: -6.7%)
• Fee Income (INRm): 32,020 (YoY: 12.9%, QoQ: -34.7%)
• Trading Profits (INRm): 8,720 (YoY: 48.6%, QoQ: -47.4%)
• Non-Interest Income (INRm): 50,880 (YoY: 19.7%, QoQ: -40.2%)
• Total Income (INRm): 188,200 (YoY: 7.5%, QoQ: -19.0%)
• Operating Profit (INRm): 92,021 (YoY: 4.7%, QoQ: -25.8%)
• Loan Loss Provisions (INRm): 33,590 (YoY: -13.9%, QoQ: -27.5%)
• Total Provisions (INRm): 39,997 (YoY: 14.4%, QoQ: -39.3%)
• PAT (INRm): 36,924 (YoY: 10.3%, QoQ: -1.3%)

Balance Sheet Highlights

• Deposits (INRb): 16,135 (YoY: 13.7%, QoQ: 2.3%)
• Loans (INRb): 12,801 (YoY: 6.8%, QoQ: -1.5%)
• Total Assets (INRb): 20,511 (YoY: 13.1%, QoQ: 0.1%)
• CASA Ratio: 41.7% (YoY: -1.8%, QoQ: -1.2%)
• Loan-Deposit Ratio (LDR): 79.3% (down from 84.5% last year)

Key Ratios

• Gross NPLs: 4.3% (down from 4.9% last year)
• Net NPLs: 2.2% (down from 2.7% in 1Q15)
• NIM: 3.0% (down 20bps QoQ)
• Cost-Income Ratio: 51.1% (down from 49.8% in FY15)
• CAR: 12.0%
• Tier I Capital: 9.6%
• ROAE: 13.8%
• ROAA: 0.8%

Main Points and Analysis

Asset Quality

• Gross NPLs: Stable at 4.3%, with a significant drop from 4.9% last year.
• Net NPLs: Down to 2.2% from 2.7% in 1Q15.
• Provision Coverage Ratio: 69% (highest among PSBs), indicating strong asset quality.
• Fresh NPLs: Primarily in SME and mid-corporate segments.
• Loan Restructuring: INR39b, in line with estimates.
• Expectations: Gradual improvement in asset quality as economic growth gains momentum.

Loan Growth

• 1QFY16 Growth: 6.8% YoY, weaker than expected due to a challenging environment.
• Sources of Growth: Large corporate and retail segments.
• SME and Mid-Corporate Stress: Reduced loan growth in these segments.
• Expected Recovery: Loan growth is anticipated to rebound to 12% in FY16, driven by new capex demand and retail lending.

Deposit Growth

• 1QFY16 Growth: 13.7% YoY, outpacing loan growth.
• Term Deposits: 18.2% YoY growth.
• CASA Ratio: Steady at 41.7%, showing strong liability franchise.
• LDR: Moderated to 79.3% from 84.5%, suggesting room for loan growth and NIM improvement.

Profitability and Earnings

• PATMI (INRm): 161,771 (FY16E), with a slight dip in 1Q16.
• Core Net Profit: INR208,923.6 (FY17E), with expected growth.
• EPS Growth Forecast: 24% in FY16F, driven by improved loan growth and lower credit costs.
• Credit Cost: 1.35% (vs. 1.54% last year), contributing to higher profitability.

Capital Position

• CAR: 12.0%
• Tier I Capital: 9.6%
• Capital Adequacy: Strong, with plans to raise INR150b in FY16 to strengthen the balance sheet.

Investment Recommendation

• Rating: BUY (unchanged)
• Reasoning: Superior asset quality, healthy capital position, and strong franchise make SBI a preferred pick among PSBs.
• Valuation: At 1.3x FY17F P/BV, it is 20% below its LTA of 1.6x, suggesting potential upside.

Share Price Performance

• 1-Month Return: -5.2%
• 3-Month Return: -4.1%
• 12-Month Return: +5.6%
• Relative to Index: -4.7% (1M), -6.3% (3M), +0.7% (12M)

Summary of Key Insights

• Stable Asset Quality: Gross NPLs and Net NPLs are stable, with a strong provision coverage ratio.
• Loan Growth Weak but Expected Recovery: Loan growth is weak in 1QFY16 but is expected to improve to 12% in FY16.
• Deposit Growth Strong: Deposits grew at 13.7% YoY, with term deposits up 18.2%.
• NIM Compression: NIM dropped 20bps QoQ to 3.0%, due to slower deposit re-pricing.
• Valuation Discount: Current P/BV is 20% below LTA, suggesting undervaluation.
• Capital Strength: SBI maintains the best capital position among PSBs.
• Earnings Outlook: Earnings are expected to grow, with core EPS forecasted at 29.1% in FY17E.

Conclusion

SBI remains a strong investment candidate due to its stable asset quality, healthy capital position, and strong franchise. While loan growth was weak in the first quarter, the bank is optimistic about recovery in the second half of FY16. The current valuation is 20% below its long-term average, supporting the BUY recommendation.