Newsflash – SBI Estimate and Target Price Revised Upwards

Citigroup Research has upped the target price of State Bank of India in a report released just a while ago to Rs 1,825. Citi has also upgraded the EPS earnings estimate to Rs 102.64 and Rs 121.18 for FY2008 and FY2009 respectively.

SBI is India’s largest bank with around 20% market share in deposits and loans, 9,038 branches and more than 90m customers. Target price for SBI is Rs1,825 based on our EVA model, which captures the long-term value of the business and is a standard valuation measure for Citigroup’s India Banking universe.

Citi has revised target price from Rs1,235 previously, as they now incorporate new earnings, lowered the risk-free rate to 8% (8.5% previously) in line with the market level, increased the valuation of its subsidiaries to Rs525 (Rs231 previously) as we
have moved valuation benchmarks to FY09E and we have factored in the Insurance and asset management business.

Federal Bank – Earnings Estimate and Target Price Upgraded:
Citi has also upgraded the earnings estimate and price target of Federal Bank as well. Federal’s 1Q08 profits were up 67%yoy; pre provision profits were up 66%, ahead of estimates. Increased coverage levels (88%) with low net NPLs (>0.4%) provide comfort.

Federal Bank is expected to report a fully diluted EPS of Rs 40.58 and Rs 49.53 for FY2008 and FY2009. Raising estimates 11-17% for FY08-09E, target price to Rs 438 and target P/BV multiple to 1.7x FY09E (from 1.5x Sep 07) to reflect premium over average PSU banks.