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SBI – Tug of War between Analysts

May 5, 2008

Research Analysts at Citigroup and Morgan Stanley are having a tug of war when it comes to Index Heavyweight State Bank of India. Morgan Stanley Downgraded the bank to Underweight [If you follow their MCSI, then you have to SELL the stock] while, Citigroup lowered the price target but still retained a BUY on the stock.

SBI reported a 21% sequential increase in NPLs. This was driven by higher agricultural NPLs (farmers stopped coming to branches to repay, after the debt waiver scheme announced by government – according to management). The other driver for higher NPLs is SME/ SSI – a sector witnessing some stress. Given that these remain focus areas for growth, we expect an NPL increase as we move forward. Moreover, with NPL coverage of 42%, credit costs could rise significantly.

Credit costs are likely to rise on account of low provisioning levels as well as low coverage ratio. Wage hikes/provisions will lead to significant increase in employee costs says Morgan report.

Morgan Stanley expects a FALL in EPS of SBI to Rs 102 from Rs 117 reported for FY08. Citi expects the EPS to be Rs 126 for FY09. Morgan Stanley has set a Target Price of Rs 1,550 while Citi has downgraded the target price from Rs 2,790 to Rs 2,370.

DalalStreet.Biz Analyst View: We feel SBI will see a dip growth this year but FY09 EPS is likely to be sustained at Rs 120. In our view the stock should trade at Rs 1,700 levels until a clearer picture emerges at the end of June-2008.

Comments

One Response to “SBI – Tug of War between Analysts”

  1. Anonymous on May 7th, 2008 4:29 PM

    Lehman Brothers have set a Target Price of Rs 1,900 on SBI. The report said,

    Material spike in net inc. NPA at 2.9%. Management believes that a large part of these are technical NPAs, but we are not as sanguine.

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