Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Q1FY17 RESULT UPDATE GEOJIT BNP PARIBAS Research RETAIL EQUITY RESEARCH State Bank of India (SBI) Banking BSE CODE: 500112 NSE CODE: SBIN Bloomberg CODE: SBIN:IN SENSEX: 28,077 BUY Rating as per Large cap 12months investment period CMP Rs259 TARGET Rs284 RETURN 10% 22 nd August 2016 Profitability to improve on the back of declining asset quality stress SBI is the largest commercial bank in India with over 1/5 th market share of the Indian banking sector. It has a strong domestic presence with 16,784 branches and international presence with 198 branches across 36 countries. NII increased marginally by 4% YoY (in line with our expectation) as margin remained under pressure on the back of incremental disbursements into low yielding corporate loans. Operating profit increased at a healthy pace of 20% YoY supported by higher other income ( 44% YoY). Gross NPA ratio which increased by 44 bps sequentially to 6.9% (better than expected) due to lower fresh slippages of Rs8,790cr (Rs30,313cr in Q4FY16). We expect advances to increase at a CAGR of 11% over FY16-18E led by lending to high rated corporates and retail segment. We expect net profit to increase at a CAGR of 37% over FY16-18E on the back of declining provisioning expenses. SBI is trading at a discount to its five years mean (2.1x 1 Year Forward P/ABV) valuation. We assign BUY rating on the stock with target price of Rs284 based on SOTP methodology. Business to grow faster than industry average Advances and deposits of SBI increased at 11% YoY each largely driven by retail segment. We expect advances to grow at a CAGR of 11% over FY16-18E led by strong momentum in retail loan growth and lending to high rated corporates and deposits to grow at a CAGR of 13% led by retail deposits. Profitability to improve significantly Net Interest Income (NII) increased marginally by 4% YoY (in line with our expectation) as the bank s net interest margin (NIM) declined by 16 bps to 2.8% on the back of incremental disbursements into low yielding corporates. Operating profit of the bank increased at a healthy pace of 20% YoY supported by higher other income ( 44% YoY). We expect net profit to increase at a CAGR of 37% over FY16-18E led by declining credit cost and stable NIM of 3.0%. Well placed on asset quality front Gross non-performing asset (NPA) ratio which increased by 44 bps sequentially to 6.9% (better than expected) due to lower fresh slippages of Rs8,790cr as compared to Rs30,313cr in Q4FY16. SBI has one of the lowest Gross NPA ratio of 6.9% and Net NPA ratio of 4.1% as of Q1FY17 among PSBs. Besides, the bank also maintained high provisioning coverage ratio (PCR) of 62%. We expect Gross NPA and Net NPA ratios to improve to 6.0% and 3.1% by FY18E led by lower slippages coupled with higher recovery. Outlook & Valuation We expect net profit to gain strong traction (37% CAGR over FY16-18E) aided by controlled credit cost and pick-up in loan growth. At CMP of Rs259, the stock (standalone) is trading at P/ABV of 2.0x and 1.8x for FY17E and FY18E, respectively. The stock is trading at a discount of its five years mean (2.1x 1 Year Forward P/ABV) valuation. We assign BUY rating on the stock with target price of Rs284 based on sum of the parts (SOTP) methodology where we value its standalone business at Rs239 (P/ABV of 1.6x for FY18E) and subsidiaries at Rs45 (holding company discount: 20%). Company Data Market Cap (Rs cr) 200,668 Outstanding Shares (cr) 776 Free Float 37% Dividend Yield -- 52 week high Rs282 52 week low Rs148 6m average volume (cr) 2.7 Beta 1.9 Face value Rs1 Shareholding % Q3 FY16 Q4 FY16 Q1 FY17 Promoters 61.4 61.3 61.3 FII s 10.4 9.3 9.0 MFs/Insti 18.7 19.1 19.8 Public& Others 9.5 10.3 9.9 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return 50% 57% -7% Absolute Sensex 11% 18% 0% Relative Return* 39% 39% -7% *over or under performance to benchmark index 300 280 260 240 220 200 180 160 140 120 100 SBI Sensex (rebased) Y.E Mar (Rscr) FY16 FY17E FY18E Net Interest Income 56,881 63,049 68,042 Growth (%) 3% 11% 8% NIM (%) 3.0 3.1 3.0 Pre Pro Profit 43,257 49,772 55,370 Growth (%) 11% 15% 11% Net Profit 9,950 13,593 18,624 Growth (%) -24% 37% 37% EPS 12.8 17.5 24.0 Growth (%) -27% 37% 37% P/E 20.2 14.8 10.8 P/BV 1.4 1.3 1.2 P/ABV 2.3 2.0 1.8 RoE (%) 7.3 9.1 11.5 RoA (%) 0.5 0.6 0.7
Quarterly Financials (Standalone) Profit & Loss Account (Rs cr) Q1FY17 Q1FY16 YoY Growth % Q4FY16 QoQ Growth % Interest Income 41,594 39,643 4.9 42,831 (2.9) Interest on advances 29,884 28,582 4.6 29,242 2.2 Income on Investments 10,704 10,019 6.8 11,008 (2.8) Others 1,005 1,042 (3.5) 2,581 (61.0) Interest Expense 27,281 25,911 5.3 27,541 (0.9) Net Interest Income 14,312 13,732 4.2 15,291 (6.4) Non-Interest Income 7,335 5,088 44.2 10,696 (31.4) Total Net Income 21,647 18,820 15.0 25,986 (16.7) Operating Expenses 10,594 9,618 10.1 11,794 (10.2) Employee Cost 6,257 5,906 5.9 6,943 (9.9) Other Operating Exp. 4,337 3,712 16.9 4,852 (10.6) Total Income 48,929 44,731 9.4 53,527 (8.6) Total Expenditure 37,875 35,529 6.6 39,335 (3.7) Pre-Provisioning profit 11,054 9,202 20.1 14,192 (22.1) Provisions 7,413 4,000 85.3 13,174 (43.7) Profit Before Tax 3,641 5,202 (30.0) 1,018 257.7 Tax 1,120 1,510 (25.8) (246) -- Net Profit 2,521 3,692 (31.7) 1,264 99.5 EPS - Diluted (Rs) 3.3 4.9 (33.4) 1.6 98.2 Key Ratios (%) Q1FY17 Q1FY16 YoY bps Q4FY16 QoQ bps NIM 2.8 3.0 (16) 3.0 (13) Cost of Fund 6.1 6.4 (37) 6.3 (24) Yield on Advances 9.6 10.3 (78) 10.0 (45) Yield on Investment* 8.0 7.6 45 8.6 (60) Yield on Fund 8.4 8.7 (29) 8.8 (41) Cost to Income* 48.9 51.1 (217) 45.4 355 Credit to Deposit* 79.5 79.3 14 84.6 (510) CASA 42.8 41.7 108 43.8 (106) CAR 14.0 12.0 201 13.1 89 Tier I Capital 10.8 9.6 120 9.9 90 GNPA 6.9 4.3 265 6.5 44 NNPA 4.1 2.2 181 3.8 24 Provision Coverage 61.6 60.7 88 69.5 (792) Credit Cost* 2.1 1.2 84 3.6 (151) ROE (Ann.) 6.2 11.2 (494) 3.5 276 ROA (Ann.) 0.4 0.7 (28) 0.2 21 * Calculated Sum of the parts (SOTP) valuation Stake (%) Methodology Valuation (Rs mn) Value of SBI's Stake Value Per Share (Rs) SBI Standalone 100 1.6x FY18E ABV 1784544 1784544 239 SBBJ 75 0.5x FY18E ABV 30087 22587 3 SBH 100 0.5x FY18E ABV 41864 41864 5 SBM 90 0.5x FY18E ABV 17375 15637 2 SBP 100 0.5x FY18E ABV 22654 22654 3 SBT 79 0.5x FY18E ABV 31653 24977 3 Others 314714 235849 40 Source: Company, Geojit BNP Paribas Research 20% holding discount to subsidiaries (11) Target Price 284
Standalone Financials Profit & Loss Account Balance Sheet Y.E March (Rs cr) FY14 FY15 FY16 FY17E FY18E Interest Income 136,351 152,397 163,685 169,874 187,478 Interest Expense 87,069 97,382 106,804 106,826 119,437 Net Interest Income 49,282 55,015 56,881 63,049 68,042 % Change 11.2 11.6 3.4 10.8 7.9 Non-Interest Income 18,553 22,576 28,158 32,492 37,086 Net Income 67,835 77,591 85,040 95,540 105,127 Operating Expenses 35,726 38,585 41,782 45,768 49,758 Total Income 154,904 174,973 191,844 202,366 224,564 Total Expenditure 122,794 135,967 148,586 152,594 169,194 Pre-Prov. Profit 32,109 39,006 43,257 49,772 55,370 % Change 3.3 21.5 10.9 15.1 11.2 Provisions 15,935 19,692 29,484 29,176 27,152 Profit Before Tax 16,174 19,314 13,774 20,596 28,218 Tax 5,283 6,212 3,823 7,003 9,594 Tax Rate (%) 33 32 (28) 34 34 Net Profit 10,891 13,102 9,950 13,593 18,624 % Change (22.8) 20.3 (24.1) 36.6 37.0 No. of Shares (cr) 747 747 776 776 776 EPS (Rs) 14.6 17.5 12.8 17.5 24.0 % Change (29.3) 20.3 (27.0) 36.6 37.0 Y.E March (Rs cr) FY14 FY15 FY16 FY17E FY18E Liabilities Capital 747 747 776 776 776 Reserves & Surplus 117,536 127,692 143,498 154,066 167,950 Deposits 1,394,409 1,576,793 1,730,722 1,941,245 2,214,045 Borrowings 183,131 205,150 224,191 244,022 267,935 Other Liabilities & Provisions 98,748 137,698 159,876 177,395 193,687 Total Liabilities 1,794,570 2,048,080 2,259,063 2,517,504 2,844,393 Assets Cash & Balances 132,550 174,861 167,468 194,123 210,333 Investments 398,308 495,027 477,097 526,408 600,383 Advances 1,209,829 1,300,026 1,463,700 1,619,613 1,808,329 Fixed Assets 8,002 9,329 10,389 11,521 12,682 Other Assets 45,881 68,836 140,408 165,839 212,666 Total Assets 1,794,570 2,048,080 2,259,063 2,517,504 2,844,393 Ratios Y.E March (Rs) FY14 FY15 FY16 FY17E FY18E EPS 14.6 17.5 12.8 17.5 24.0 DPS 3.4 3.5 2.6 2.8 3.0 BV 158.4 172.0 185.9 199.5 217.4 ABV 116.8 135.1 111.1 129.5 146.0 Valuation (%) P/E 17.7 14.7 20.2 14.8 10.8 P/BV 1.6 1.5 1.4 1.3 1.2 P/ABV 2.2 1.9 2.3 2.0 1.8 Div. Yield 1.3 1.4 1.0 1.1 1.2 Spreads (%) Yield on Advances 9.1 9.0 8.4 7.9 7.8 Yield on Investments 8.5 8.2 8.7 8.6 8.5 Yield on Funds 9.1 9.0 8.8 8.3 8.2 Cost of Funds 5.9 5.8 5.7 5.2 5.1 Capital (%) CAR 12.4 12.0 13.1 11.1 10.5 Tier I 9.7 9.6 9.9 9.0 8.5 Tier II 2.7 2.4 3.2 2.1 2.0 Asset (%) GNPA 4.9 4.3 6.5 6.5 6.0 NNPA 2.6 2.1 3.8 3.4 3.1 PCR 62.9 69.1 60.7 58.6 58.8 Management (%) Credit/ Deposit 86.8 82.4 84.6 83.4 81.7 Cost/ Income 52.7 49.7 49.1 47.9 47.3 CASA 44.4 42.9 43.8 43.6 43.7 Earnings (%) NIM 3.3 3.2 3.0 3.1 3.0 ROE 10.0 10.6 7.3 9.1 11.5 ROA 0.6 0.7 0.5 0.6 0.7
Recommendation Summary (last 3 years) Dates Rating Target 400 350 300 250 200 150 100 50 0 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Source: Bloomberg, Geojit BNP Paribas Research 24 May 2013 BUY 258 01 February 2014 HOLD 159 16 April 2014 HOLD 183 20 May 2014 HOLD 243 16 February 2015 BUY 348 04 July 2015 BUY 338 18 January 2016 BUY 302 15 February 2016 BUY 256 22 August 2016 BUY 284 Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit BNP Paribas Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit BNP Paribas's research desk have reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Kaushal Patel, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit BNP Paribas Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
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