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SBI – Good Results in a difficult environment

July 30, 2009

SBI reported better-than-expected earnings – with NII growing 4% yoy and 9% ahead of estimates, PAT grew 42% to Rs23.3 bn and was 15% ahead of estimates. Asset quality trends were strong – incremental delinquency at 1.5% annualized and total restructured loans at 3.8%. Expect the positive traction on margins and asset quality to continue over the next few quarters.

A key concern for SBI has been its low margins, especially after its huge deposit mobilization in 2QFY09 and 3QFY09. SBI reported a 2.3% margin in 1QFY10, almost similar to its 4QFY09 margin.

SBI has done fairly well on this count, with its gross NPLs remaining stable at 2.8% and net NPLs declining to 1.6%.

SBI’s total restructured assets [Mostly Real Estate Lending] under RBI’s special dispensation scheme as of March 2009 were about Rs130 bn and about Rs110 bn of proposals were pending. Out of the pending proposals, about Rs81 bn of loans have been restructured in 1QFY10. Thus, the total restructuring has been Rs210 bn.

SBI is expected to report an EPS of Rs 130 for FY10 and Rs 149.4 for FY11. The sum of the parts valuation as on today stands at Rs 1,880.

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