SBI Q1 FY20 Results – 5 Point Analysis

SBI Q1 FY20 Financial Highlights

Introduction

In this article, we will see 5 Point Analysis of SBI Q1 FY20 Results released on friday, 2nd August 2019. In this analysis, we have covered Q1 FY20 Results, Advances and Deposits, NIM, NPAs and current valuation of the bank etc.

SBI Q1 FY20 Results – 5 Point Analysis

1.SBI Q1 FY20 Results Update

1. Net Interest Income (NII)
   • NII is the differance between interest earned on advances and interest expenses of deposits of the bank. It is considered as a core source of income of the bank.
   • NII is increased by 5.23% Y-o-Y but decreased by 0.07% Q-o-Q.
2. Total Income
   • With the decrease in the other income by almost 37% Q-o-Q, the total income numbers are eroded by 7% Q-o-Q but improved by 8% Y-o-Y.
   • Thus, the bank’s performance was better in Q4 FY19 in terms of NII and other income than Q1 FY20.
3. Operating Profit
   • Muted growth in core fee income and higher operating expenses led to a miss the operating profit expectations.
   • Operating profit has increased 10.6% Y-o-Y but decreased by 21.6% Q-o-Q due to decreased total income and increased total expenditure.
4. Provisions for NPAs
   • SBI made a provision of Rs.11,648 Cr in Q1 FY20 for DHFL exposure, which includes 25% provisioning on bonds and 7.5% provisioning on loans (included in standard asset provisions).
   • The bank also made of standard asset provisions on a renewable energy account (Suzlon) in the quarter.
5. Net Profit
   • After making provisioning from operating profits and paying tax, net profit numbers come. Decreased provisioning Q-o-Q as well as Y-o-Y has supported the Net profit numbers boost by 175.9% Q-o-Q.
   • The bank has reported net profit of Rs.2,312 Cr in Q1 FY20 against a loss of Rs.4,875 Cr in Q1 FY19.

2.Advances and Deposits

1. Advances
   • Out of the total advances for Q1 FY20 are Rs.22.38 Lakh Cr out of which around 28% advances are domestic retail type and domestic corporate loans contributes 37% of the gross advance book. 62% of the retail loans are the home loans.
2. Deposits
   • Total Depoists for Q1 FY20 is Rs.29.48 Lakh Cr out of which, around 47% deposits accounts to CASA and the rest 53% deposits are Retail Term Deposits(RTDs).
   • Savings deposits and RTDs are comparatively sticky kind of deposits maintained with the bank. It can be a poistive sign for the bank.
   • On further break-up of CASA contributes to 12.84 Lakh Cr While RTDs contribute to Rs.15.66 Lakh Cr.
   • CASA number should surpassing RTDs contribution in order to lower the interest expenses of the bank. Since, bank requires to offer lower interest rates on CASA deposits than RTDs.

3.Net Interest Margin (NIM)

• Domestic NIMs were sequentially flat at 3.01% in Q1 FY20 from 2.95% in Q1 FY19 (+6 basis points Y-o-Y), while foreign NIMs continued to decline 1.18%.
• Even if Q1 FY20 quarter end balances fell by 2.3% Q-o-Q, Yield on advances moved up by almost 7 basis points Q-o-Q (~8.6%) on account of higher average balances.
• NIM is expected to improve to 3.05% by FY21E, led by the rising share of higher yielding loans and better pricing power.

4.NPAs

• After a strong Q4FY19, Q1 FY20 saw a broad based rise in slippages.
• Slippages increased sharply in Retail and Agriculture in the quarter Q1 FY20. Slippages came in higher than anticipated at Rs.17,000 Cr, largely driven by :
  1. Agri NPAs (seasonally weak plus abnormally higher slippages in Maharastra
     contributing 50% to agri slippages) and
  2. SME slippages
• Corporate slippages were at Rs.5400 Cr, largely contributed by techical slippage of Ratnagiri Gas (Rs.2000 Cr).
• Gross NPAs are at stable to 7.53% in Q1 FY20 as well as in Q4 FY19. While Net NPAs is increased to 3.07% from 3.01% Q-o-Q. But there is a significant decrease in the Gross and Net NPA numbers Y-o-Y.
• Provision coverage ratio is also improved to 79.34% in Q1 FY20 from 78.7% in Q4 FY19 and 69.25% in Q1 FY19. It shows bank has well covered its non-performing assets.

5.Valuation Update

Key Risks for SBI

• Macroeconomic risk is the biggest risk for SBI, given its size and exposures. General economic slowdown, lower IRRs on projects, slackened risk appetite constitute the overall macroeconomic risk. General activity slowdown could adversely impact performance as SBI is a proxy to the economy.
• Deepening geographic penetration by newer private sector banks can lead to faster than expected decline in SBI’s market share.

Valuation Update

• Before the announcement of Q1 FY results, market capitalisation of SBI was around Rs.2.83 Lakh Cr with PE ratio of almost 35.17. After releasing the results, the market cap of the bank has fallen to Rs.2.67 Lakh Cr. with PE ratio of 33.29.
• Despite the disappointment in asset quality, it is estimated that core ROA and ROE may improve in coming 4-5 quarters led by the improvement in NIM, controlled expenses and reduction in stressed asset formation.
• The value embedded in non-banking subsidiaries is stabilising and scalable. Listing of profitable subsidiaries like SBI Cards can also improve the valuation of the SBI.
• The Net profit of SBI (standalone) is estimated at around Rs.23,000 Cr for FY20 with the estimated earnings per share (EPS) to be almost Rs.25 per share. As a result of increase in the EPS numbers, the PE ratio of the stock will come down up to 9-11, with the expected correction in the stock in FY20 according to the current valuation.