BUY. STATE BANK OF INDIA STANDALONE Result Update: Q2 FY14. DEC. 4 th, CMP Target Price Highlights

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1 BUY CMP Target Price STATE BANK OF INDIA STANDALONE Result Update: Q2 FY14 DEC. 4 th, 2013 ISIN: INE062A01012 Stock Data Sector Banking BSE Code Face Value / Div. Per Share wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years FY13A FY14E FY15E Net Income Gross Int. Income Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph STATE BANK OF INDIA BSE SENSEX Highlights State Bank of India (SBI), largest public sector bank reported 11.64% YOY growth in Net Interest Income at Rs mn against Rs mn in Q2 FY13. Net Interest Margin of the bank stood at 3.19% against 3.45% in the corresponding quarter of the previous year. Though Gross NPAs and Net NPAs stood at 5.64% and 2.91% in current September quarter, Fresh NPA slippages declined by 39.23% sequentially in Q2 FY14 and net accretion to NPA was down by 65.83% to Rs mn. Net profit declined by 35.08% at Rs million for the quarter ended September 30 th 2013 from Rs million for the quarter ended Sep 30, Deposits increased from Rs mn in Sep 12 to Rs mn in Sep 13, a growth of 14% YOY. CASA ratio stood at 43.58% with savings bank deposits at Rs mn. State Bank of India has revised its Base Rate by 20 bps from 9.80% p.a. to 10.00% p.a. and Benchmark Prime Lending rate by 20 bps from 14,55% p.a. to 14.75% p.a. with effect from November 07, Provision coverage ratio as on 30 th September, 2013 stands at 60.16%. Bank s Capital Adequacy Ratio as per Basel lli norms stood at 11.69% (Tier I- 8.73%) as on Government of India has proposed to infuse Rs mn by way of preferential allotment of equity shares in favour of the GOI. PEER GROUPS CMP MARKET CAP. EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) SBI ICICI Bank Ltd Jammu & Kashmir Bank Punjab National Bank

2 Analysis & Recommendation - BUY State Bank of India, largest public sector bank rose by 3% after announcement of September quarter results despite of its net profit falling YOY by 35% at Rs mn against Rs mn in the corresponding quarter previous year. Net Interest Income, difference between interests earned and expended rose by 11.64% from mn to Rs mn in Q2 FY14. Net Interest Margin stood at 3.19% against 3.45% in the corresponding quarter of the previous year. Gross NPAs as a percentage of gross advances stood at 5.64% against 5.15% YOY whereas Net NPAs as a percentage of net advances stood at 2.91% against 2.44% in Q2 FY13. On sequential basis, fresh NPA slippages declined by 39.23% in Q2 FY14 and net accretion to NPA were down by 65.83% to Rs mn. Deposits and advances grew by 14% and 19% respectively YOY. CASA ratio stands at 43.58% and the provision coverage ratio at 60.16% as on 30 th September State Bank of India, the largest commercial bank in terms of profits, assets, deposits, branches and employees was expected to report decline in profits due to high interest rate and rupee depreciation scenario especially during May- August period. Being the largest lender in the country, fulfilling various schemes and policies of the government, asset quality of the bank is still satisfactory under the present economic conditions as QOQ GNPAs and NNPAs rose by just 8 basis points. SBI s major exposure of Gross NPAs is to mid corporate (10.21%) and agriculture sector (11.10%). With the improvement in the economic scenario which is expected in the next half year, State Bank of India with its branches and CAR of 11.64% (Basel III) as on 30 th September is poised for high and stable future growth. Even at a current price of Rs , SBI has high scope of appreciation in the coming quarters. Thus we recommend BUY with a target price of Rs for medium and long term. Company Profile State Bank of India (SBI), the largest public sector bank is headquartered in Mumbai, Maharashtra. After Reserve Bank of India, SBI is considered to be the next most important institution in the banking industry. SBI with its behemoth size and operations has successfully countered private sector competition. The bank provides wide range of banking products through its network in India and overseas, including products aimed at non-resident Indians (NRIs). State Bank of India has branches as on 30 th September 2013 of which 38% are in rural areas. The number of ATMs stands at in September State Bank Of India has five associate banks, State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT). The combined PAT of the five associate bank stands at Rs mn in Q2 FY14. The foreign subsidiaries of the bank are State bank of India International (Mauritius) Ltd, State Bank of India (California), State Bank of India (Canada), INMB bank ltd, Lagos, and Bank SBI Indonesia (SBII). SBI also has non banking subsidiaries, SBI Capital Markets Ltd, SBI Funds Management Pvt Ltd, SBI Factors & Commercial Services Pvt Ltd, SBI Cards & Payments Services Pvt. Ltd. (SBICPSL), SBI DFHI Ltd and SBI General Insurance Company Limited. The combined PAT of the SBI group is Rs mn and ROE at 10.16% as on 30 th September 2013.

3 FINANCIAL HIGHLIGHTS (STANDALONE) Q2 FY14 (Rs. In Million) Sep-13 Sep-12 % Change Total Interest Earned Interest on advances Income on Investments Other Income (2.06) Provisions & contingencies (NPAs) Net Interest Income Net Profit (35.08) Total interest earned rose by 14.58% at Rs in Q2 FY14. Interest on advances and income on investments, two main constituents of interest earned rose by 12.60% and 21.18% respectively. Other income fell by 2% from Rs mn to Rs mn in the current September quarter. Provisions and contingencies of NPAs rose by 44% at Rs mn from Rs mn in Q2 FY13. Net Interest Income rose by 11.64% whereas net profit declined by 35% YOY. Asset Quality of the Bank Asset Quality(In mn) As on As on Amount of Gross NPAs Amount of Net NPAs % of Gross NPAs 5.64% 5.15% % of Net NPAs 2.91% 2.44% Gross NPAs rose by 30% on absolute terms from Rs mn to mn in Q2 FY14. Net NPAs increased by 42% from Rs mn to Rs mn in the current September quarter. Gross NPAs as a percentage of gross advances rose by 49 basis points YOY. Net NPAs as a percentage of net advances rose by 47 basis points YOY.

4 Diversified Exposure across sector Particulars (Rs.mn.) Q2 FY14 CAG MCG SME Agriculture Retail FOs Misc Segment-wise Revenue (In Rs. Millions) Q2 FY14 Q2 FY13 CHNG % Corporate % Treasury Operations % Retail banking % Branch Mix As on 30 th September 2013

5 State Bank of India - Consolidated Results The Group has posted a net profit after Minority Interest of Rs million for the quarter ended September 30, 2013 as compared to Rs million for the quarter ended September 30, Total Income has increased from Rs million for the quarter ended September 30, 2012 to Rs million for the quarter ended September 30, Important Updates Government of India and RBI has approved infusion of Rs mn in SBI. Capital infusion will be by way of preferential allotment of equity shares in favour of the Government of India. State Bank of India has revised the Base Rate by 20 bps from 9.80% p.a. to 10.00% p.a. and Benchmark Prime Lending rate by 20 bps from 14,55% p.a. to 14.75% p.a. with effect from November 07, State Bank of India has acquired 23% shares of Bank State Bank of India, Indonesia (BSBII) in a recent deal with P. T. Ravindo Jaya. As per the Present Shareholding of BSBII, State Bank of India has 99%stake and P. T. Ravindo Jaya has 1% stake in the bank.

6 Financial Statements & Estimations (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance sheet as on 31 st March, 2012 to 2015E State Bank Of India FY12A FY13A FY14E FY15E CAPITAL AND LIABILITIES Capital Reserves and Surplus Deposits Borrowings Other Liabilities and Provisions Total Liabilities ASSETS Cash and Balances with Reserve Bank of India Balances with Banks and Money at Call and Short notice Investments Advances Fixed Assets Other Assets Total Assets Annual Profit & Loss Statement for the period from 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Income Other Income Total income Interest Expended Gross Interest Income Operating Expenses Operating Profit Provisions and Contingencies Profit Before Tax Tax Profit After Tax Equity Capital Reserves Face Value (Rs.) EPS

7 Quarterly Profit & Loss Statement for the period from 31 st March 2013 to 31 st Dec 2013E Value(Rs.in.mn) 31-Mar Jun Sep Dec-13E Description 3m 3m 3m 3m Net Income Other Income Total income Interest Expended Gross Interest Income Operating Expenses Operating Profit Provisions and Contingencies Profit Before Tax Tax Profit After Tax Equity Capital Face Value (Rs.) EPS Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) Operating Profit Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) Debt-Equity Ratio Book Value (Rs.) P/BV (x)

8 Charts Industry Overview Indian Banking industry has weathered the storm of 2008 financial crises and is getting ready for the US stimulus withdrawal next year. RBI has successfully insulated our country s banking system from external shocks but all is not well within the system. The Public sector banks have been reeling under bad loans and non performing assets. Priority lending and poor lending practices have taken a toll on the government owned banks. Though private sector banks have fared well, growth has slowed over the last few quarters. In addition to that high interest rate scenario has impacted the asset liability management of various banks. In august 2013, RBI had undertaken various measures to stabilize the Indian foreign exchange rate. The marginal standing facility (MSF) rate was raised by 200 bps and liquidity adjustment facility was capped at 0.5 percent of the net demand and time liabilities (NDTL). But this liquidity squeeze resulted in increasing short term and long term rates. At present rupee dollar exchange rate has stabilized which had fallen till Rs. 68 due to reversal of previous RBI measures. In the recent RBI policy, measures have been taken to improve liquidity and control inflation at the

9 same time by raising the repo rate to 7.75%. Controlling inflation through interest rates affects the profitability of the banks as higher interest rates lead to lower NIMs. The government has recently proposed to infuse Rs mn in public sector banks to beef up Tier I capital to meet Basel III norms. State run banks have also been allowed to raise capital from the market through QIP and follow on offers. In addition to that government is also proposing to increase the limit of authorized in PSU banks to allow them to raise more funds from the market. Indian Banking industry needs to gear itself up to face the permanent volatile financial sector and high competition through allotment of new banking licenses and entry of foreign banks. Outlook and Conclusion At the current market price of Rs the stock P/E ratio is at x FY14E and x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY14E is seen at Rs and Rs respectively. Debt-Equity ratio is expected at x for FY14E and x for FY15E. Price to Book Value of the stock is expected to be at 1.13 x and 1.03 x for FY14E and FY15E respectively. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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