State Bank of India – Can Still do Better

India’s Largest Bank, SBI reported a PAT of Rs18.7bn down 32% y/y and significantly lower than our and street estimates of Rs26-28bn. Higher than expected NPA provisions and operating expenses led to the large miss. Though coverage did improve by ~400bps, it was proportionately lower than the P&L hit taken. For FY10 net profit was almost flat y/y at Rs91.6bn.

NPA – NPL’s do go up and so do restructured assets, but it is not dramatic, not concentrated and both the mix and management talk suggests asset quality will probably stay at these levels, rather than deteriorate.

Consolidated earnings increased by 7% yoy to Rs117 bn for FY2010. Consolidated NII grew 15% to Rs334 bn. SBI Life has recorded a profit of Rs2.8 bn for FY2010 while SBI capital markets posted a profit of Rs1.5 bn.

SBI did show improvement across many operating metrics over last 2 quarters and this has addressed some of our concerns but we believe that asset quality issues could continue over the next 6 months as restructured book comes up for review. The Bank can still do better.

EPS Estimates of SBI for fy 11 and fy 12
ENAM – 150 and 184
Goldman Sachs – 168 and 222
JP Morgan – 214 and 258 [WoW that’s really big optimism]
Kotak – 178 and 223
Citi – 174 and 250 [What is the growth expectation for 2012 ?]