Prabhudas Lilladher is bullish on State Bank of India (SBI) and has recommended accumulate rating on the stock with a target of Rs 2500 in its February 14, 2013 research report.
“SBI reported lower than expected PAT at Rs33.9bn due to miss on NIMs and higher NPA provisions. Operating metrics continue to remain weak with margins coming off from 2Q levels and core fees continuing to contract. Slippages at 3.4% was also a negative surprise and restructuring was limited due to non-recognition of Suzlon in 3Q. We believe operating metrics will continue to disappoint for most PSUs including SBI and restrict ROA improvement even though we expect credit costs to come off. Valuations remain reasonable at 1.1x FY14 P/B and hence we retain ACCUMULATE with PT of Rs2500.”
“The interest reversal coupled with competitive pricing had been weighing on margins with domestic NIM’s for 3QFY13 at 3.63% VS 3.68% in 2QFY13. The core fee income too came in weak, ~3% YoY contraction, due to lower corporate activity and the lower rates on government business. We expect the operating performance for PSU banks to remain muted on weakness in margins and core fees. 3QFY13 slippages were at an elevated level of 3.4% and surprised negatively. ~Rs 15-20 bn slipped in 3Qfy13 has already been shifted to restructured category from NPA after the end of 3QFY13 and there could be some more upgrades in 4QFY13. Higher slippages are attributable to mid corporate and SME segment, while the retail portfolio performed well despite the aggressive growth in the segment. Restructuring for the quarter at Rs 28.4 bn remained relatively lower than peers, but this does not include Suzlon (SBI’s exposure Rs 36 bn). Apart from Suzlon, the banks sees total restructuring pipeline of Rs 37 bn (of which 25 bn fund-based),” says Prabhudas Lilladher research report.
Public holding more than 90% in Indian cos
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