CMP = Rs 1,227 (as of Tues)
Price target: Rs 1,325
Result highlights
- State Bank of India's (SBI) results have been far ahead of expectations with the profit after tax (PAT) growing by 75% to Rs 1,493 crore compared to our estimate of Rs 1,260 crore.
- The higher than expected growth in the PAT was driven mainly by a Rs 950-crore write-back of the provisions on the bond portfolio.
- The reported net interest income (NII) increased by 21.5% to Rs 4,320 crore, however adjusted for the one-time items the NII was up 23.9% year on year (yoy).
- My calculations suggest that the net interest margin (NIM) improved by 17 basis points on a sequential basis and by 29 basis points yoy to 3.24%, driven by better yields and controlled costs.
- The reported non-interest income grew by 22.6% yoy to Rs 2,894.3 crore. However there was a Rs950-crore of write-back due to excess provisions on its books.
- The operating expenses were up 9.9% yoy, in line with expectations; the reported operating profits were up 34% yoy and the core operating profits (excluding treasury, others & amortisation/write-back) were higher by 40.1% yoy. However, the adjusted operating profits were up by 20.7% yoy.
- The provisions went up by 38% yoy mainly due to higher non-performing asset (NPA) provisions and standard asset provisions.
- The asset quality of the bank has shown some deterioration, the gross NPA declined by 4% sequentially to Rs 9,998 crore whereas the net NPA increased by 17% on a sequential basis to Rs 5,258 crore despite higher provisions.
- The results have been a mixed bag. While improvement was seen in the core operating performance driven by the NII and fee income growth, higher provisions restricted the overall profit growth.
- But it's mainly the one-off write-back of Rs 950 crore that resulted in a higher than expected growth in the profits. I have downgraded FY2008E PAT by 2.6% to Rs 5,377.9 crore mainly due to the adjustment made for the higher dividend income received by SBI in FY2007 (the bank would have normally received the same in FY2008) and slightly higher NPA provisions which I feel should be factored in due to the uptick in the credit cycle.
- At the current market price of Rs 1,226, the stock is quoting at 13x its FY2008E stand-alone earnings per share (EPS), 1.7x FY2008E stand-alone book value and 1.3x FY2008E consolidated book value.
- I maintain our Buy recommendation on the stock with a price target of Rs 1,325.
