SBI Reports Disappointing Q3FY13 Numbers

The State Bank of India (SBI) disappointed the streets with its Q3FY13 numbers. The bank posted a muted topline and bottomline growth as also it faced serious headwinds on the asset quality front. The markets gave a thumbs-down to the bank resulting in the stock plunging by 2% to Rs 2210 per share, post its results. The following table shows some key financial indicators of the bank and their performance for the December 2012 quarter:

For Q3FY13, the Net Interest Income of the bank declined by 3% to Rs 11,154 crore while the bank’s net profit grew marginally by 4% to Rs 3,400 crore. Its profit grew marginally due to lower provisions, which decreased by 9% to Rs 3,996 crore on a YoY basis. Even net interest margin (NIM) of the bank declined by 44 basis points and 5 basis points on yearly and sequential basis to 3.4% for the quarter ending December 2012.

SBI continued to face serious headwinds when it came to asset quality. The Gross and Net NPA of the bank increased by 15 basis points each, to 5.3% and 2.59% respectively on a sequential basis. Further, if one considers the YoY basis, it worsened substantially. The Gross and Net NPA increased by 69 and 37 basis points respectively on a YoY basis. As on December 31, 2012, the Provision coverage ratio (PCR) stands at 61.49% against 62.52% in the similar quarter last year. The bank is maintaining its PCR much lower than the RBI requirement of 70% for all the scheduled commercial banks.

As on December 31, 2012, the Capital Adequacy Ratio (CAR) of the bank as per Basel II norms stands at 12.21%, much higher than 11.6% in the similar period last year. Tier 1 CAR of the bank stands at 7.59%. Media reports suggest that the Government has approved a fresh capital infusion of around Rs 3,000 crore in the bank in the March quarter. We believe that this infusion of capital will improve the bank’s capital in the March 2013 quarter.

SBI posted a decent business growth. As on December 31, 2012, the deposits of the bank increased by 15.56% to Rs 11,56,691 crore while Gross Advances of the bank grew by 16% to Rs 10,09,110 crore on a YoY basis. Further, the Credit Deposit Ratio of the bank stands at 79.21%. Large corporate advances, Agriculture loans and Auto loans to Retail grew at a handsome rate for the bank.

On the valuation front, the bank is trading at a Price to Book value of around 1.5x, which we believe is fairly valued. It is because of its muted growth on topline and bottomline, coupled with concerns on asset quality that the bank’s shares are trading at such lower valuations. We suppose there is still some downside risk in the counter and expect the shares to move southwards and would therefore suggest applying a wait-and-watch strategy.