SBI Post Robust March Numbers, Stock up 3 per cent

India largest bank, State bank of India (SBI) posted its March quarter numbers which were above the streets estimates. On a standalone basis it posted a net profit of Rs 4050 crore against the street estimate of Rs 3580 crore. As soon as the results came on the streets the scrip headed northwards, up 3.07 per cent. At the end of the trading day the scrip closed up 5.08 per cent to Rs 1942 per share. Investors should distinctly recollect that for the same quarter last year bank had posted a profit of mere Rs 21 crore which was on the back of higher provisioning.

Bank showed an improvement on their asset quality which is commendable. Gross NPA decreased by 17 basis points to 4.44 per cent while Net NPA decreased by 40 basis points to 1.82 per cent on a sequential basis. The Provision coverage ratio (PCR) of the bank also improved by 315 basis points to 68.1 per cent on YoY basis however it is just below the RBI comfort of 70 per cent. With the government infusing capital of Rs 7900 crore and with the help of internal accruals banks capital adequacy ratio (CAR) improved and stood at a good level. As on 31st March 2012, CAR of the banks stands at 13.86 per cent with Tier 1 CAR standing at 9.79 per cent which is well above the government comfort level of 8 per cent for FY12.

One should note that leading global rating agency named Moody’s downgraded in 2011,financial strength rating from C- to D+ on account of asset quality concerns and low capital adequacy ratio. And hence investors should note that there could be further re-rating for the bank, as it has shown substantial improvement in both the parameters.

Net Interest Margin (NIM) of the bank also showed an improvement. For the March quarter of 2012, NIM of the bank increased by 82 basis points to 3.89 per cent. However when we look at the Domestic NIM for the full year of FY12 it increased to 4.17 per cent from the previous 3.63 per cent which was in the last year. At 4.17 per cent of NIM it is one of the best among the Industry.

As on 31st March 2012, Deposits of the bank increased by 11.75 per cent to Rs 933933 crore while Advances increased by 15.78 per cent to Rs 893613 crore. CASA ratio of bank decreased by 318 basis points to 46.64 per cent largely on account of negative growth in current account and muted growth in saving deposits account. Further on the credit front, management said that the corporate disbursement will remain subdued while the retail loan book continues to show decent strength.   Management guided that the business growth for the banks would be challenging in FY13.

Treasury segment of the bank performed well during the March quarter. Revenue from the segment increased by 17 per cent to Rs 6209 crore while the profit from the segment stood at Rs 414 crore against the loss of Rs 475 crore in the similar quarter last year.

Now let us look at full year 2011-12 standalone financial numbers of the bank. Net Interest Income (NII) of the bank increased by 33 per cent to Rs 43291 crore while the net profit of the bank increased by 41 per cent to Rs 11707 crore. Provisions increased by 16 per cent to Rs 19866 crore. On a consolidated basis, Net Interest Income (NII) of the bank increased by 27 per cent to Rs 57877 crore while net profit increased by 43 per cent to Rs 15343 crore. Board recommended a dividend of Rs 35 per share for the year end 31st March 2012.

Overall the bank posted a good set of numbers which boosted the market sentiments. It has been almost one year when the top two to three management joined the bank, and at that point of time reported a dismal numbers (FY11 and fourth quarter).However now it seems that everything is settling in the bank and that SBI is back on the growth track. Management guided that it will see improvement in NIM’s while the business growth would be challenging going ahead. On the valuation front, SBI is available at a price to book value (P/BV) of 1.59 times, which is fairly valued considering the size of the bank. We believe SBI will continue to grow ahead and will create wealth for the Investors keeping in mind a longer term horizon.