Fresh selling in index ,triggered by dismal earnings from banking giant State Bank of India (SBI), pulled the market to near 8-week lows. The BSE 30-share Sensex was down 252.92 points or 1.38%, off 343.69 points from the day's high and up 7.44 points from the day's low. Investors are worried that high interest rates may hit consumption demand and curtail corporate profitability.
As the Country's premier lender, State Bank of India (SBI)‘s net profit for the quarter ended March 31, 2011 plunged by 98.88% at Rs 20.88 crore whereas the same was at Rs 1866.60 crore for the quarter ended March 31, 2010. Its total income for the quarter under review has increased by 18.07% at Rs 26536.84 crore whereas the same was at Rs 22474.12 crore for the March quarter of the previous Fiscal.
Why the fall of 99% in the Quarterly Profits?
The bank has made a higher NPA allotment (provisioning ) , at Rs 3,264 crore versus Rs 2,187 crore, increase of 49%, whereas Gratuity Provisioning rose to Rs 1565 crore as against Rs 46 crore in FY10, which has been affecting the performance of almost all the PSU`s like Punjab & Sindh, Union Bank, etc.
Provisioning for the Non Performing Assets(NPAs) mean, the funds the bank are supposed to put aside in case of defaults by the borrowers. So, higher provisioning means the bank expecting higher defaults, which can affect future profitability.
Also, the tax liability on the Provisioning can be written off only when the loans are actually written off!
So, the above two factors are to be taken into consideration, while taking a call that is SBI a ‘BUY’ of ‘SELL’
We would first look at the NPA provisioning across the sector. ICICI bank halved its provisions, even HDFC , State Bank of Mysore reduced their provisioning for the NPA`s which helped them to post better numbers.
So, here, we can see that the outlook of SBI differs from its peers. Thus, here , there is a possibility of two scenarios, one the SBI goes wrong i.e. there are lesser defaults and the other scenario being the defaults are in line with their expectations.
If the former occurs, then SBI can easily meet the provisions with an additional surplus, which would help the PAT In the coming quarters.
In case of the latter, SBI is prepared for the same, and thus It would not require to make higher provisions in the follow on quarter, which gives it enough buffer. Wherein , its peers would have allot more funds for provisioning, which would then impact the bottom line, then.
The above assumptions are made on the basis of the fact, that all the banks of the same segment as SBI enjoy a similar portfolio mix i.e. the ratio of borrowing and lending belonging to the retail and the wholesale segments is similar.
So, in both the cases, SBI`s prudent measure, would result in a Win – Win situation for the investors in the coming quarters, whereas, the other banks may not offer a significant cushion against higher defaults, thereby higher risk for the investors.
What about the Year on Year Growth?
For the year ended March 31, 2011, the bank’s net profit has dropped by 9.84% at 8264.52 crore whereas the same was at Rs 9166.05 crore for the year ended March 31, 2010. Its total income rose by 13.09% at Rs 97218.96 crore for the year where as the same was at Rs 85962.07 crore in the previous year.
Bank's loan book expanded 20.32% y-o-y to Rs 7.72 lakh crore while deposits grew a little above 16% to Rs 9.34 lakh crore.
On consolidated basis, the group’s net profit after minority interest for the year ended March 31, 2011 has declined by 8.94% at Rs 10684.95 crore whereas the same was at Rs 11733.83 crore for the year ended March 31, 2010. Its total income have increased by 10.45% at Rs 147843.92 crore for the year under review whereas the same was at Rs 133851.83 crore for a period ago.
Looking at the growth in the previous years, which is at an average rate of 18% over 5 years, the bank has managed to grow by 13%, which is quite phenomenal and in line with its trend, considering the pressure on the credit off take due to higher interest rates.
Also, the credit growth and other growth has been in tandem with the previous trends, except for the PAT!
Quick look at some other facts:
- The change new management headed by Pratip Chaudhuri, indicates a more prudent appraoch.
- Capital Adequacy Ratio(CAR) is adequate enough to support a further 20% loan growth.
- Gross NPA rose 25.31% to Rs 19,534.89 crore (YoY) and gross NPA went up 3.57% to Rs 10870 crore (QoQ).
- Other income declined 4.44% to Rs 4508.53 crore.
- Employee cost went up 52.88% to Rs 3591.76 crore.
- It has a rights issue around the corner.
- State Bank of Indore which was merged in 2010, does not figure in the books, which would lead to further improvement here on.
Last one year for the Stock:
The scrip opened at Rs 2,624.40 and has touched a high and low of Rs 2,628.00 and Rs 2,440.00 respectively. So far 15,39,111 shares were traded on the counter.
The BSE group 'A' stock of face value Rs 10 has touched a 52 week high of Rs 3,515.00 on 08-Nov-2010 and a 52 week low of Rs 2,138.00 on 25-May-2010.
Last one week high and low of the scrip stood at Rs 2,688.90 and Rs 2,440.00 respectively.
The last words…
The bank's balance sheet is now cleaned up. Long term outcome will be healthy for the bank. The price crack is highly sentimental and there is ought to be a cover up in the next sessions The attitude of the bank can be compared to an Indian family , which saves for a rainy day rather than being lavish or going over the roof in spending. If what we read through these numbers is right, then SBI would truly prove to be a banker to every Indian!!!
(Data obtained from http://www.bseindia.com/xml-data/corpfiling/AttachLive/State_Bank_of_India1_170511.pdf)
(Previous post related to SBI : Analysis of SBI)
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