State Bank of India (SBI)s 2QFY2016 results have outperformed our as well as
street expectations. The PAT for the bank grew 25.1% yoy to Rs3,879cr, led by
healthy performance on all fronts.
Slippages dip, NIM improves, qoq
During 2QFY2016, the bank’s advances grew by 10.5% yoy, which is the highest
growth rate amongst the previous 5 quarters. Consolidation continued in midcorporate
and Agri, which posted a decline of 5.2% and 2.2% yoy, respectively.
On the other hand, retail and large corporate continued to scale up with a
growth of 16.8% yoy and 21.7% yoy, respectively. Deposits outpaced advances
with a 10.9% yoy growth for the quarter, with retail term deposits growing at
12.6% yoy. The Global NIM increased marginally by 2bp qoq to 3.01% in
2QFY2016 which was mainly due to decline in the cost of funds; but yields
witnessed a decline during the quarter. The non-interest income (excl. treasury)
for the bank grew by 14.2% yoy, with fee income growth of 1.4% yoy.
Asset quality showed signs of improvement with Gross and Net NPA ratios
declining by 14bp and 10bp to 4.15% and 2.14% respectively. Fresh slippages
came in at Rs5,875cr as against Rs7,318cr for 1QFY2016. Even restructuring of
loan assets came lower at Rs2,450cr as against Rs3,936cr in the sequential
previous quarter. The bank refinanced ~Rs4,000cr worth of loans under the 5/25
scheme and Rs400cr worth of assets were sold to ARCs, during the quarter. Further, it
has guided for a refinacing pipeline of ~Rs6,600cr (8 loan accounts), going ahead.
Outlook and valuation: SBI has been reporting stable numbers with respect to
slippages and NPA ratios over the past several quarters as compared to its peers.
With expectation of improvement in economic growth in the medium term, asset
quality woes could further reduce, which in turn could lead to further
improvement in return ratios. The bank’s core strength has been its high CASA
and fee income, which has supported its core profitability in challenging times. Its
strong capital adequacy also provides comfort. In our view, the stock is currently
trading at a moderate valuation of 0.9x FY2017E ABV (after adjusting Rs44/share
towards value of subsidiaries) as compared to its peers. Hence, we recommend a
BUY rating on the stock with a target price of Rs283.

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