SBI, 1Q FY 2014

7/27/2019 SBI, 1Q FY 2014

1/14

Please refer to important disclosures at the end of this report 1

Particulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)NII 11,512 11,078 3.9 11,125 3.5Pre-prov. profit* 7,551 7,761 (2.7) 8,177 (7.6)

PAT 3,241 3,299 (1.8) 3,752 (13.6)Source: Company, Angel Research

SBI reported a poor operating performance for the quarter, primarily dragged byasset quality challenges. Key highlights of the results were a) moderate NII growth(3.5% yoy as compared to advance growth of 15.7% yoy), b) weak asset qualityperformance (as slippages surged to 5.3% from 2.7% in previous quarter, whilerecoveries and upgrades also came in lower sequentially) and outlook on thesame remains challenging c) spike in staff expenses (as retirement benefitsprovisions increased on account of change in longevity assumptions and wagerevision provisioning), which would remain elevated for the rest of the fiscal.

Asset quality worsens: During 1QFY2014, the banks advances grew by ahealthy 15.7% yoy. CASA deposits increased by 11.3% yoy, relatively lower thandeposits growth of 14.0% yoy and hence the CASA ratio declined by 147bp qoqto 44.7%. Despite strong growth in recoveries from written-off accounts (56.2%yoy), non-interest income (excl. treasury) remained flat, on back of weak feeincome performance. Treasury income came in at `1,201cr compared to a`221cr in 1QFY2013. The bank witnessed significant asset quality deteriorationduring the quarter. Of the slippages worth `13,766cr during the quarter,~`2,200 of Agri slippages were technical in nature, which the Managementexpects to upgrade in 2QFY2014. Until the current quarter, a large chunk of

incremental slippages for the bank used to come only from the mid-corporateand SME segments, but during the quarter the slippages came across segments(even from large corporate segment), clearly reflecting the weak economicenvironment. Recoveries/upgrades came in much lower at`2,916cr compared to`5,718cr in 4QFY2013. Hence, gross NPA levels increased by 19.0% qoq. PCRdipped by 598bp sequentially to 60.6% and thus net NPA levels increased by36.6% sequentially. Additionally, the bank restructured advances worth~`4,384cr, thereby taking its outstanding restructured book to `44,811cr. As perthe Management, further restructuring pipeline stands at ~`10,000cr.

Outlook and valuation:The banks has witnessed elevated asset quality pressurefor quite some time now and the pressures are unlikely to abate in the near term,in our view, considering recent macro developments in an overall weak macroenvironment. We have reduced our earnings estimate by 15.4% for FY2014E and

15.5% for FY2015E to reflect in higher staff expenses, likely treasury losses andcontinued asset quality challenges. As per our estimates, inspite of its corestrengths such as high CASA, fee and capital adequacy relative to peers, in termsof core profitability indicators, the bank is estimated to register just 13.7% RoE inFY2014E, while valuations remain highest within PSU banks. Hence, werecommend a Neutral rating on the stock.Key financials (standalone)Y/E March (` cr) FY2012 FY2013 FY2014E FY2015ENII 43,291 44,331 48,295 55,451% chg 33.1 2.4 8.9 14.8Net profit 11,707 14,105 13,165 16,454% chg 41.7 20.5 (6.7) 25.0

NIM (%) 3.6 3.2 3.0 3.0

EPS (`) 174.5 206.2 192.5 240.5P/E (x) 9.2 7.8 8.3 6.7

P/ABV (x) 1.3 1.2 1.1 1.0RoA (%) 0.9 0.9 1.0 1.0

RoE (%) 16.5 16.1 16.3 16.8Source: Company, Angel Research; Note: CMP as of August 12, 2013

NEUTRALCMP `1,605Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 62.3

MF / Banks / Indian Fls 16.7

FII / NRIs / OCBs 12.7

Indian Public / Others 8.3

Abs. (%) 3m 1yr 3yr

Sensex (5.8) 7.9 4.8

SBIN (30.4) (15.0) (42.4)

Reuters Code SBI.BO

SBIN@IN

BSE Sensex 18,947

Nifty 5,612

Avg. Daily Volume 410,330

Face Value (`) 10

Beta 1.2

52 Week High / Low 2550/1575

Banking

Market Cap (`cr) 109,774

Vaibhav Agrawal022 3935 7800 Ext: 6808

[email protected]

Sourabh Taparia022 3935 7800 Ext: 6872

[email protected]

Harshal Patkar022 3935 7800 Ext: 6847

[email protected]

State Bank of IndiaPerformance Highlights

1QFY2014 Result Update | Banking

Aug 13, 2013

7/27/2019 SBI, 1Q FY 2014

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State Bank of India | 1QFY2014 Result Update

August 13, 2013 2

Exhibit 1:1QFY2014 performance (standalone)Particulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy) FY2013 FY2012 % chgInterest earned 31,718 30,784 3.0 28,922 9.7 119,657 106,521 12.3- on Advances / Bil ls 23,846 23,064 3.4 22,135 7.7 90,537 81,078 11.7- on investments 7,361 7,035 4.6 6,379 15.4 27,201 23,885 13.9

- on balance with RBI & others 113 166 (31.9) 151 (25.2) 545 414 31.5

- on others 398 519 (23.3) 258 54.5 1,374 1,144 20.1

Interest Expended 20,206 19,706 2.5 17,798 13.5 75,326 63,230 19.1Net Interest Income 11,512 11,078 3.9 11,125 3.5 44,331 43,291 2.4Other income 4,474 5,547 (19.3) 3,493 28.1 16,035 15,221 5.3Other income excl. treasury 3,273 5,318 (38.4) 3,272 0.0 14,937 15,271 (2.2)

- Fee Income 2,558 3,873 (34.0) 2,603 (1.7) 11,484 12,091 (5.0)

- Treasury Income* 1,201 229 424.5 221 443.5 1,098 (49) (2,321.8)

- Forex Income 383 475 (19.4) 457 (16.1) 1,692 1,432 18.1

- Others 332 970 (65.7) 213 56.2 1,762 1,748 0.8

Operating income 15,986 16,625 (3.8) 14,618 9.4 60,366 58,512 3.2Operating expenses 8,435 8,864 (4.8) 6,441 31.0 29,284 26,069 12.3- Employee expenses 5,539 5,612 (1.3) 4,137 33.9 18,381 17,457 5.3

- Other Opex 2,895 3,252 (11.0) 2,304 25.7 10,904 8,612 26.6

Pre-provision Profit 7,551 7,761 (2.7) 8,177 (7.6) 31,082 32,443 (4.2)Provisions & Contingencies 2,866 4,181 (31.5) 2,456 16.7 11,131 13,960 (20.3)- Provisions for NPAs 2,266 3,974 (43.0) 2,790 (18.8) 11,368 11,546 (1.5)

- Provisions for Investments 531 (52) (1,121.2) (521) (202.0) (962) 1,533 (162.7)

- Provisions for Std. Assets 88 267 (67.0) 169 (48.0) 750 979 (23.4)

- Other Provisions (19) (8) 136.6 17 (208.7) (25) (98) (74.9)

PBT 4,685 3,580 30.9 5,720 (18.1) 19,951 18,483 7.9Provision for Tax 1,444 280 415.0 1,969 (26.6) 5,846 6,776 (13.7)

PAT 3,241 3,299 (1.8) 3,752 (13.6) 14,105 11,707 (13.7)Effective Tax Rate (%) 30.8 7.8 2299bp 34.4 (359)bp 29.3 36.7 (736)bp

Source: Company, Angel Research;

Exhibit 2:1QFY2014 Actual vs Angel estimatesParticulars (` cr) Actual Estimates Var (%)Net interest income 11,512 11,477 0.3Non-interest income 4,474 3,875 15.5

Operating income 15,986 15,352 4.1Operating expenses 8,435 7,188 17.3

Pre-prov. profit 7,551 8,164 (7.5)Provisions & cont. 2,866 2,971 (3.5)

PBT 4,685 5,194 (9.8)

Prov. for taxes 1,444 1,454 (0.7)

PAT 3,241 3,740 (13.3)Source: Company, Angel Research

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August 13, 2013 3

Exhibit 3:1QFY2014 performance analysis (standalone)Particulars 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)Balance sheetAdvances (`cr) 1,060,689 1,045,617 1.4 916,841 15.7

Deposits (`cr) 1,257,389 1,202,740 4.5 1,102,926 14.0

Credit-to-Deposit Ratio (%) 84.4 86.9 (258)bp 83.1 123bp

Current deposits (`cr) 88,955 110,581 (19.6) 83,485 6.6

Saving deposits (`cr) 438,639 414,907 5.7 390,410 12.4

CASA deposits (`cr) 527,594 525,488 0.4 473,895 11.3

CASA ratio (%) 44.7 46.5 (183)bp 46.1 (147)bp

CAR (%) 12.1 12.9 (80)bp 13.2 (105)bp

Tier 1 CAR (%) 9.0 9.5 (48)bp 9.4 (37)bp

Profitability Ratios (%)Cost of deposits 6.3 6.3 (4)bp 6.2 1bp

Yield on advances 10.1 10.5 (49)bp 10.9 (81)bp

Cost of funds 6.4 6.5 (4)bp 6.4 1bpReported NIM (global) 3.2 3.2 (1)bp 3.6 (41)bp

Cost-to-income ratio 52.8 53.3 (56)bp 44.1 870bp

Asset qualityGross NPAs (`cr) 60,891 51,189 19.0 47,156 29.1

Gross NPAs (%) 5.6 4.8 81bp 5.0 57bp

Net NPAs (`cr) 29,990 21,956 36.6 20,324 47.6

Net NPAs (%) 2.8 2.1 73bp 2.2 61bp

Provision Coverage Ratio (%) 60.6 66.6 (598)bp 64.3 (369)bp

Slippage ratio (%) 5.3 2.7 256bp 5.0 27bp

Loan loss prov. to avg assets (%) 0.6 1.0 (48)bp 0.8 (24)bp

Source: Company, Angel Research

Business growth healthy; Domestic NIM dips by 4bp qoq

During 1QFY2014, the banks advances grew by a healthy 15.7% yoy (1.4% qoq).

Advances growth was aided by a healthy increase of 21.2% yoy in mid- corporate

book and 19.3% yoy in large corporate book. Retail, Agri and SME advances

increased by 16.2%, 12.3% and 9.2% yoy respectively.

Healthy retail advances growth was backed by a strong 25.7% yoy increase in

Home loans and a 22.6% yoy increase in auto loans. Education loans also grew

strongly by 25.1% yoy. Overseas advances increased at a moderate 13.3% yoy.

The banks loan book continues to remain well diversified, with no segmentaccounting for more than 20.0% of the total loan book.

Deposits registered a healthy growth of 14.0% yoy. CASA deposits increased by

11.3% yoy, aided by 12.4% yoy growth in saving deposits, while current deposits

grew at a moderate 6.6% yoy. CASA ratio declined 183bp qoq and 147bp yoy to

44.7%. As per the Management, the bank has nil CDs (Corporate Deposits) in its

funding book.

The domestic NIM was lower by 4bp sequentially at 3.4% while the overseas NIM

improved by 5bp sequentially to 1.5%. Hence, the overall NIM of the bank

declined by just 1bp sequentially to 3.2%.

The domestic NIM was lower majorly on account of a 49bp sequential fall in yield

on advances, which was primarily on account of aggressive pricing for better

quality lendingand interest reversals on slippages of`390cr. The domestic cost of

deposits for the bank was marginally lower by 4bp sequentially at 6.3%.

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August 13, 2013 4

Exhibit 4:Healthy Business growth


Exhibit 5:CASA franchise remains healthy


Exhibit 6:Segment-wise advances growthSegment (%)Mid-corporate 21.2

Large corporate 19.3

SME 9.2

Agri 12.3

International 13.3

Home 25.7

Auto 22.6

Education 25.1

Overall advances (gross) 15.7Source: Company, Angel Research

Exhibit 7:Loan book remains well-diversified


Exhibit 8:YoA declined by 49bp qoq


Exhibit 9:Overall NIM came off by 1bp sequentially


14.7

18.9

17.2

15.6

20.5

15.7

11.7

16.1

16.5

15.6

15.2

14.0

83.1 83.1

81.8

84.6

86.9

84.4

76.0

80.0

84.0

88.0

-

5.0

10.0

15.0

20.0

25.0

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Adv. YoY growth Dep. YoY growth CD ratio ( RHS)

46.1

45.0

45.5

46.5

44.7

10.1 9.5 9.8

14.7

11.3

-

7.0

14.0

21.0

30.0

34.0

38.0

42.0

46.0

50.0

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Reported domestic CASA ratio (%) CASA yoy growth (%, RHS)

International16%

Mid-

Corporate19%

Large

Corporate16%SME

17%

Agricultural

12%

Retail

19%

Others

1%

10.86 10.87 10.7510.54

10.05

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5


(%)

3.573.34 3.31

3.17 3.16

1.5

2.0

2.5

3.0

3.5

4.0


(%)

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August 13, 2013 5

Despite higher recoveries, non-interest income (excl. treasury)

remained flat, on back of weak fee income performance

During the quarter, non-interest income (excluding treasury) for the bank remained

flat on a yoy basis at`3,273cr, which was also on account of higher recoveries, as

fee income performance remained weak.

Recoveries from written-off accounts grew by 56.2% yoy to `302cr during the

quarter. Fee income de-grew by 1.7% yoy to `2,558cr. Within fee income,

transaction fees increased by 5.1% to `555cr and Misc Fee Income increased

15.8% yoy to `454cr, whereas, income from all other streams such as loan

processing charges, commission on business from Govt. and LC commission

declined on a yoy basis. As per the Management, the bank has reduced/waived

off its fee charges on loan processing, which has led to decline in fee income from

that segment.

Treasury income for the bank came at `1,201cr during the quarter compared to

`221cr in 1QFY2013. Hence, the overall non-interest income for the bank grew by

a strong 28.1% yoy.

Exhibit 10:Lower fee income results in muted yoy growth in non interest incomeParticulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)Fee income 2,558 3,873 (34.0) 2,603 (1.7)

Treasury 1,201 229 424.5 221 443.5

Forex 383 475 (19.4) 457 (16.1)

Dividend 33 637 (94.8) 12 175.0

Others 299 333 (10.1) 201 49.1

Other income 4,474 5,547 (19.3) 3,493 28.1Other income excl. treasury 3,273 5,318 (38.4) 3,272 0.0


Asset quality worsens

On the asset-quality front, the annualized slippage rate for the bank spiked to

5.3%, higher sequentially from 2.7% in 4QFY2013. Out of the `13,766cr

slippages during the quarter, ~`2,200cr of Agri slippages were on technical

accounts, which the Management expects to upgrade in 2QFY2014. Further,~`2,000cr worth of advances slipped after their admission for restructuring, which

will get upgraded in the next two quarters, depending on implementation of

restructuring package. Until the current quarter, a large chunk of incremental

slippages for the bank used to come only from the mid-corporate and SME

segments, but during the quarter the slippages came across_segments (even from

large corporate segment), clearly reflecting the weakening economic environment.

Consequently, Gross NPA ratio for the bank in mid-corporate, SME and Agri

segments inched upwards to 9.5%, 8.5% and 11.6%, respectively, up from 8.7%,

7.2% and 9.4% in 4QFY2013. Industry wise, slippages came in majorly from trade

& services (`1,068cr), iron & steel (`1,843cr), Agro/Food (`948cr) and

engineering (`729cr).

During the quarter, recoveries/upgrades came in much lower at `2,916cr

compared to `5,718cr in 4QFY2013 and `2,797cr in 3QFY2013. Hence, on a

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August 13, 2013 6

sequential basis, gross NPA levels were higher by 19.0%. PCR dipped by 598bp

sequentially to 60.6% and thus absolute net NPA levels increased by 36.6%

sequentially (highest in our coverage banks). As of 1QFY2014, the gross NPA

ratio stands at 5.6% (4.8% in 4QFY2013), while the net NPA ratio stands at2.8% (2.1% in 4QFY2013) up by 81bp and 73bp sequentially, respectively.

Additionally, the bank restructured advances worth~`4,384cr during the quarter

thereby taking its outstanding restructured book to `44,811cr. As per the

Management, further restructuring pipeline stands at ~`10,000cr. Of the

restructured book`1,000cr slipped to NPA category during this quarter.

Exhibit 11:Slippages spike sequentially


Exhibit 12:NPA ratios under pressure sequentially


Exhibit 13:Break-up of provisioning expensesParticulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)

NPA 2,266 3,974 (43.0) 2,790 (18.8)

Standard assets 88 267 (67.0) 169 (48.0)

Investments 531 (52) (1,121.2) (521) (202.0)

Others (19) (9) 111.1 17 (208.9)

Total Provisions 2,866 4,180 (31.4) 2,456 16.7Source: Company, Angel Research;

Cost-to-income ratio remains on the higher side, on back of

moderate growth of 9.4% yoy in operating income as against31.0% yoy increase in operating expenses

During the quarter, total employee expenses increased by 33.9% yoy to `5,539cr,

while other operating expenses were higher by 25.7% to `2,895cr. Within

employee expenses, payment to employees increased by 24.9% yoy to `4,315cr

(after taking into account provision for impending wage revision), while

contribution for employees increased by a much higher 79.7% yoy (as the bank

made higher retirement benefits provisions considering a) changes in longevity

assumptions [`600cr provided on this count, of the total requirement of`2,400cr,

which would be provided for in balance part of the year] and b) provisioning for

impending wage revision. The bank has further expanded its already strong

branch network to 14,902 branches.

5.0 3.3 3.8 2.7 5.3

0.8

0.5

0.8

1.0

0.6

-

0.3

0.6

0.9

1.2

-

1.0

2.0

3.0

4.0

5.0

6.0


Slippages (%) Credit cost (%, RHS)

5.0

5.2

5.3

4.8

5.6

2.2

2.4

2.6

2.1

2.8

64.3

62.8

61.5

66.6

60.6

56.0

60.0

64.0

68.0

-

1.0

2.0

3.0

4.0

5.0

6.0


Gross NPAs (%) Net NPAs (%) NPA coverage (%, RHS)

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August 13, 2013 7

Exhibit 14:Opex growth trendsParticulars (` cr) 1QFY144QFY13 % chg (qoq) 1QFY13 % chg (yoy)Payment to employ. 4,315 4,707 (8.3) 3,456 24.9

Contrib. for employ. 1,224 905 35.2 681 79.7

Total staff expenses (A) 5,539 5,612 (1.3) 4,137 33.9Rent, taxes and lighting 645 683 (5.6) 519 24.3

Dep. on property 265 346 (23.4) 202 31.5

Others 1,986 2,223 (10.7) 1,583 25.4

Other opex(B) 2,896 3,252 (10.9) 2,304 25.7Total opex (A)+(B) 8,435 8,864 (4.8) 6,441 31.0


Exhibit 15:Cost-to-income ratio remains elevated


Performance overview of subsidiaries

SBI Life reported a PAT of `213cr for 1QFY2014 as compared to`163cr in1QFY2013, an increase of 30.7% yoy.

SBI Capital Markets registered a PAT growth of 151.9% yoy to `68cr during1QFY2014. SBI DFHI recorded a PAT of`41cr in 1QFY2014 as compared to

a PAT of`27cr in 1QFY2013.

SBI Cards and Payment Services posted a PAT of `67cr for 1QFY2014 asagainst `10cr posted in 1QFY2013.

SBI Funds Management recorded a PAT figure of `33cr for 1QFY2014 asagainst`26cr for 1QFY2013, an increase of 26.9% yoy.

SBIs associate banks recorded earnings de-growth of 11.7% yoy to`837cr in1QFY2014.

44.1 48.6 47.4 53.3 52.8

1.9 1.9 1.9

2.32.1

-

0.5

1.0

1.5

2.0

2.5

-

10.0

20.0

30.0

40.0

50.0

60.0


Cost-to-income ratio (%) Opex to average assets (%, RHS)

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August 13, 2013 8

Investment arguments

Strong CASA franchise

SBI has a strong CASA franchise on account of its huge nationwide branch network (~15,000 as of 1QFY2014). As of 1QFY2014, the banks CASA ratio stood at

44.7%, the highest amongst all PSU banks, which even translates in lower Cost of

funds for the bank (at 6.4% during 1QFY2014).

Strongest fee income among PSU banks

SBI has a relatively strong share of fee income, owing to its strong corporate and

government business relationships. The bank continued its dominance with non-

interest income/assets at 1.0% in FY2013 and 0.8% (annualised) in 1QFY2014

(one of the highest among PSU banks).

Outlook and valuation

The bank has witnessed elevated asset quality pressure for quite some time now

and the pressures are unlikely to abate in the near term, in our view, considering

recent macro developments in an overall weak macro environment. We have

reduced our earnings estimate by 15.4% for FY2014E and 15.5% for FY2015E to

reflect in higher staff expenses, likely treasury losses and continued asset quality

challenges. As per our estimates, in spite of its core strengths such as high CASA,

fee and capital adequacy relative to peers, in terms of core profitability indicators,

the bank is estimated to register just 13.7% RoE in FY2014E, while valuationsremain highest within PSU banks. Hence, we recommend a Neutral rating on thestock.Exhibit 16:Key assumptionsParticulars (%) Earlier estimates Revised estimatesFY2014E FY2015E FY2014E FY2015ECredit growth 17.0 17.0 16.0 17.0

Deposit growth 17.0 17.0 14.0 17.0

CASA ratio 43.4 42.7 44.5 43.8

NIMs 3.0 3.0 3.0 3.0

Other income growth 9.8 15.5 6.5 11.3

Growth in staff expenses 12.5 12.5 27.0 -

Growth in other expenses 10.0 10.0 12.5 10.0

Slippages 2.8 2.4 3.5 2.8

Coverage Ratio 70.0 71.5 61.0 64.0

Source: Angel Research

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August 13, 2013 9

Exhibit 17:Change in estimatesParticulars (` cr)

FY2014E FY2015EEarlierestimates Revisedestimates Var. (%) Earlierestimates Revisedestimates Var. (%)

Net interest income 48,802 48,295 (1.0) 56,412 55,451 (1.7)Non-interest income 17,615 17,097 (2.9) 20,322 19,015 (6.4)

Operating income 66,417 65,392 (1.5) 76,734 74,467 (3.0)Operating expenses 32,672 35,610 9.0 36,457 36,837 1.0

Pre-prov profit 33,745 29,782 (11.7) 40,277 37,630 (6.6)Provisions & cont. 11,426 11,695 2.4 11,049 12,991 17.6

PBT 22,319 18,087 (19.0) 29,228 24,638 (15.7)

Prov. for taxes 6,761 4,922 (27.2) 9,744 8,184 (16.0)

PAT 15,558 13,165 (15.4) 19,484 16,454 (15.5)Source: Angel Research

Exhibit 18:P/ABV band


Exhibit 19:P/E band


0

1,000

2,000

3,000

4,000

5,000

6,000

Apr-

06

Dec-

06

Aug-

07

Apr-

08

Dec-

08

Aug-

09

Apr-

10

Dec-

10

Aug-

11

Apr-

12

Dec-

12

Aug-

13

Price (`) 1.0x 1.5x 2.0x 2.5x 3.0x

0

1,000

2,000

3,000

4,000

5,000

Jan-05

Sep-05

May-06

Jan-07

Sep-07

May-08

Jan-09

Sep-09

May-10

Jan-11

Sep-11

May-12

Jan-13

Price(`) 8x 11x 14x 17x

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August 13, 2013 10

Exhibit 20:Premium/Discount to Sensex


Exhibit 21:Angel EPS forecast vs. consensusYear Angel forecast Bloomberg consensus Var (%)FY2014E 241.2 216.2 11.6

FY2015E 280.4 256.0 9.5

Source: Bloomberg, Angel Research

(70)

(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

Apr-

06

Dec-

06

Aug-

07

Apr-

08

Dec-

08

Aug-

09

Apr-

10

Dec-

10

Aug-

11

Apr-

12

Dec-

12

Aug-

13

Discount to Sensex Avg. Historical Dis count

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August 13, 2013 11

Exhibit 22:Recommendation summaryCompany Reco. CMP(`) Tgt. price(`) Upside(%) FY2015EP/ABV (x) FY2015ETgt. P/ABV (x) FY2015EP/E (x) FY2013-15EEPS CAGR (%) FY2015ERoA (%) FY2015ERoE (%)AxisBk Buy 1,070 1,255 17.3 1.2 1.4 6.8 19.1 1.6 18.1

FedBk Neutral 331 - - 0.7 - 6.4 2.9 1.0 12.3

HDFCBk Buy 602 724 20.3 2.8 3.4 13.3 26.3 1.9 22.8

ICICIBk* Buy 866 1,038 19.9 1.2 1.5 9.0 15.8 1.6 15.4

SIB Neutral 21 - - 0.8 - 4.9 5.7 0.9 16.2

YesBk Neutral 301 - - 1.3 - 6.1 16.9 1.3 22.8

AllBk Neutral 72 - - 0.4 - 2.4 12.6 0.6 12.4

AndhBk Reduce 60 - - 0.4 - 3.6 (15.1) 0.5 10.0

BOB Neutral 518 - - 0.6 - 4.2 8.3 0.8 14.2

BOI Neutral 177 - - 0.4 - 2.8 16.2 0.7 13.9

BOM Neutral 39 - - 0.4 - 3.3 5.4 0.5 14.1

CanBk Neutral 247 - - 0.5 - 4.1 (3.4) 0.6 10.4CentBk Reduce 57 - - 0.6 - 3.6 40.1 0.5 12.8

CorpBk Neutral 278 - - 0.3 - 2.8 2.3 0.7 13.5

DenaBk Neutral 47 - - 0.3 - 2.2 (3.3) 0.6 13.2

IDBI# Neutral 59 - - 0.3 - 2.7 25.1 0.8 13.3

IndBk Neutral 70 - - 0.3 - 2.1 (4.2) 0.8 12.4

IOB Neutral 40 - - 0.3 - 2.6 57.5 0.5 10.5

J&KBk Neutral 1,064 - - 0.8 - 5.3 (3.5) 1.3 16.3

OBC Neutral 142 - - 0.3 - 2.7 7.4 0.6 11.1

PNB Neutral 535 - - 0.5 - 3.2 10.8 1.0 15.7

SBI* Neutral 1,605 - - 1.0 - 6.7 8.0 0.8 14.7SynBk Neutral 70 - - 0.4 - 3.0 (16.0) 0.6 12.8

UcoBk Neutral 56 - - 0.5 - 3.6 66.4 0.6 13.5

UnionBk Neutral 118 - - 0.4 - 2.9 6.2 0.6 13.4

UtdBk Neutral 36 - - 0.3 - 1.8 54.6 0.6 14.7

VijBk Neutral 37 - - 0.4 - 4.2 (0.4) 0.4 9.8

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF

Company background

State Bank of India is the largest bank in India, with an asset size of more than

`16lakh cr. The bank has the widest network of 14,900+ branches, with dominantpresence across all regions of the country, with two-thirds of its branches in rural

and semi-urban areas (in comparison, the second largest PSU bank has a total of

~5,900 branches and the largest private sector bank has a total of ~3,300

branches). The bank also has ~186 overseas branches, which account for ~17%

of its total loans. It has subsidiaries in life insurance, asset management, credit

cards and capital markets, among others; and five regional subsidiary banks

(having ~5,100 branches and combined asset size of ~`5.6lakh cr).

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August 13, 2013 12

Income statement (standalone)Y/E March (` cr) FY10 FY11 FY12 FY13 FY14E FY15ENet Interest Income 23,671 32,526 43,291 44,331 48,295 55,451- YoY Growth (%) 13.4 37.4 33.1 2.4 8.9 14.8Other Income 14,968 15,825 14,351 16,035 17,097 19,015- YoY Growth (%) 17.9 5.7 (9.3) 11.7 6.6 11.2

Operating Income 38,640 48,351 57,643 60,366 65,392 74,467- YoY Growth (%) 15.1 25.1 19.2 4.7 8.3 13.9

Operating Expenses 20,319 23,015 26,069 29,284 35,610 36,837- YoY Growth (%) 29.8 13.3 13.3 12.3 21.6 3.4

Pre - Provision Profit 18,321 25,336 31,574 31,082 29,782 37,630- YoY Growth (%) 2.3 38.3 24.6 (1.6) (4.2) 26.4

Prov. & Cont. 4,396 10,385 13,090 11,131 11,695 12,991- YoY Growth (%) 17.7 136.2 26.1 (15.0) 5.1 11.1

Profit Before Tax 13,925 14,951 18,483 19,951 18,087 24,638- YoY Growth (%) (1.8) 7.4 23.6 7.9 (9.3) 36.2

Prov. for Taxation 4,759 6,686 6,776 5,846 4,922 8,184- as a % of PBT 34.2 44.7 36.7 29.3 27.2 33.2

PAT 9,166 8,265 11,707 14,105 13,165 16,454- YoY Growth (%) 0.5 (9.8) 41.7 20.5 (6.7) 25.0

Balance sheet (standalone)Y/E March (` cr) FY10 FY11 FY12 FY13 FY14E FY15EShare Capital 635 635 671 684 684 684Reserves & Surplus 65,314 64,351 83,280 98,200 108,499 121,312

Deposits 804,116 933,933 1,043,647 1,202,740 1,371,123 1,604,214

- Growth (%) 8.4 16.1 11.7 15.2 14.0 17.0

Borrowings 71,031 79,945 86,989 128,954 145,770 169,676

Tier 2 Capital 31,980 39,624 40,016 40,229 39,223 38,243

Other Liab & Prov. 80,337 105,248 80,915 94,826 109,033 130,348

Total Liabilities 1,053,414 1,223,736 1,335,519 1,565,632 1,774,333 2,064,477Cash balances 61,291 94,396 54,076 65,830 61,701 72,190

Bank balances 24,898 28,479 43,087 48,990 44,173 51,417

Investments 295,785 295,601 312,198 350,927 394,260 450,693

Advances 631,914 756,719 867,579 1,045,617 1,212,915 1,419,111

- Growth (%) 16.5 19.8 14.7 20.5 16.0 17.0

Fixed Assets 4,413 4,764 5,467 7,005 7,703 8,698

Other Assets 35,113 43,778 53,113 47,263 53,581 62,369

Total Assets 1,053,414 1,223,736 1,335,519 1,565,632 1,774,333 2,064,477- Growth (%) 9.2 16.2 9.1 17.3 13.4 16.4

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Ratio analysis (standalone)

Y/E March FY10 FY11 FY12 FY13 FY14E FY15EProfitability Ratios (%)NIMs 2.5 3.0 3.6 3.2 3.0 3.0Cost to Income Ratio 52.6 47.6 45.2 48.5 54.5 49.5

RoA 0.9 0.7 0.9 0.9 0.8 0.8

RoE 15.7 13.3 16.5 16.2 13.1 14.7

B/S ratios (%)CASA Ratio 47.3 49.4 44.8 44.8 44.5 43.8

Credit/Deposit Ratio 78.6 81.0 83.1 86.9 88.5 88.5

CAR 13.4 12.0 13.9 12.9 12.3 11.3

- Tier I 9.5 7.8 9.8 9.5 9.3 8.7

Asset Quality (%)Gross NPAs 3.0 3.3 4.5 4.8 5.7 5.8

Net NPAs 1.7 1.6 1.8 2.1 2.8 2.5

Slippages 2.2 2.8 3.2 3.6 3.5 2.8

Loan Loss Prov./Avg. Assets 0.5 0.7 0.9 0.7 0.5 0.6

Provision Coverage 59.2 65.0 68.1 66.6 61.0 64.0

Per Share Data (`)EPS 144.4 130.1 174.5 206.2 192.5 240.5

ABVPS 972.5 967.7 1,200.1 1,364.7 1,419.9 1,622.2

DPS 30.0 30.0 35.0 41.5 37.0 47.0

Valuation RatiosPER (x) 11.1 12.3 9.2 7.8 8.3 6.7

P/ABVPS (x) 1.7 1.7 1.3 1.2 1.1 1.0

Dividend Yield 1.9 1.9 2.2 2.6 2.3 2.9

DuPont Analysis (%)NII 2.4 2.9 3.4 3.1 2.9 2.9

(-) Prov. Exp. 0.4 0.9 1.0 0.8 0.7 0.7

Adj. NII 1.9 2.0 2.4 2.3 2.2 2.2

Treasury 0.2 0.1 (0.1) 0.1 0.1 0.0

Int. Sens. Inc. 2.1 2.0 2.3 2.4 2.3 2.3

Other Inc. 1.3 1.3 1.2 1.0 0.9 0.9

Op. Inc. 3.4 3.3 3.5 3.4 3.2 3.2

Opex 2.0 2.0 2.0 2.0 2.1 1.9PBT 1.4 1.3 1.4 1.4 1.1 1.3

Taxes 0.5 0.6 0.5 0.4 0.3 0.4

RoA 0.9 0.7 0.9 0.9 0.8 0.8Leverage (x) 17.7 19.1 18.8 17.1 17.2 17.7

RoE 15.7 13.3 16.5 16.2 13.1 14.7

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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement State Bank of India

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SBI, 1Q FY 2014