State Bank of India - Post June Results - Hold

India’s largest bank, State Bank of India (SBI) disappointed the streets after posting dismal June quarter numbers of 2012. The stock plunged 4.26 per cent post the result on Friday however Investor saw some buying opportunity in today’s trade which helped the stock to close higher 0.94 per cent to Rs 1905.75 in today’s trading session. We had recommended SBI, in our DSIJ magazine in the past and hence we advise our readers to kindly hold the counter as we had clearly mentioned that investment needs to be done keeping in mind a longer term horizon. The following are the key financial parameters of the bank:

Net Interest Income (NII) of the bank increased by 14.63 per cent to Rs 11119 crore while Net profit showed a stupendous growth of 137 per cent to Rs 3752 crore on YoY basis. However markets ignored this, and focused on the asset quality which is one of the key parameters in gauging the banks performance. Asset quality of the bank worsened further. The Net NPA of the bank increased by 40 basis points to 2.22 per cent on a sequential basis. Investors and readers showed distinctly recollect that the bank had the same level of Net NPA in December quarter result of 2011 however it had shown improvement in March quarter of 2012. But it seems that bank is again challenged on its asset quality front. Further Gross NPA increased by 55 basis points to 4.99 per cent on a sequential basis and is one of the worst among the Industry.

Further the Net Interest margin (NIM) of the bank also showed contraction. NIM of the bank decreased by 5 basis points to 3.57 per cent on YoY basis. While NIM contracted by 18 basis points on a sequential basis. As on 30^th June 2012, Capital Adequacy Ratio (CAR) stood at 13.17 per cent with Tier 1 CAR of 9.38 per cent. Management guided that by the year end it expects Tier 1 CAR would probably be above 10 per cent.     

Further the bank maintained decent growth in its business. As on 30^th June 2012 Deposit of the bank increased by 16.09 per cent to Rs 1102926 crore while on the other hand Advances of the bank jumped 20 per cent to Rs 945819 crore. Growth in Advances was majorly seen from the Large corporate and Agri Advances which grew by 24.02 and 25.85 per cent respectively.

Management has guided that it would try to keep the NIM at 3.75 per cent for FY2013. On the valuation front, the bank is currently available at 1.56 times which should be considered as cheap considering the size of the bank. However it is due to the asset quality concerns that the bank is trading at lower multiples. We believe one should Hold the counter as of now, as the bank would improve its performance in the coming quarters which could in turn would garner better return to the shareholders.