SBI Stock Analysis | Latest Quarter Results

SBI Stock Analysis – Q4 FY20 Results Update

Introduction

State Bank of India – SBI stock price climbs more than 5% after reporting a standalone net profit of Rs.3,581 Cr in Q4 FY20 aided by a one time gain of Rs.2,731 Cr from Stake sale in SBI Cards. Lets discuss the detailed stock analysis and current valuation update of SBI.

SBI Stock Analysis | Latest Quarter Results Analysis

Q4 FY20 Results

Net Interest Income (NII)

• Net Interest Income (NII) deteriorated YoY as well as QoQ. NII is at Rs.22,767 Cr in Q4 FY20 versus Rs.22,954 Cr in Q4 FY19.
• The QoQ decline in NII is very significant 18% from Rs.27,779 Cr in Q3 FY20 mainly on account of moderate loan growth, resulting in dampened Interest Income.

Operating Profit (PPOP)

• Pre-provisioning Operating Profit (PPOP) has reported a moderate growth of 9% YoY and only 1.3% QoQ mainly on account of :
  • Robust growth in Non Interest income, which stood at Rs.16,077 Cr in Q4 FY20 up by 26.7% YoY & 76.6% QoQ
  • It is mainly due to One Time Gain from stake sale in SBI Cards in Q4 FY20, which is at Rs.2,731 Cr.
  • The rather than Core Income (NII), income from other operations and gain from stake sale in SBI cards has played a key role in the bank’s operating profit, which is not a positive sign.

Total Provisions

• Total Provisions were up 17.8% QoQ and declined by 7.5% YoY to Rs.14,848 Cr in Q4 FY20.
• Of the total provisions, COVID-Related provisions were only Rs.940 Cr which is very low as compared to SBI’s peers and also considering the track record of bank’s asset quality.
• Thus the lower COVID-related provisions will be a concern for the bank, in current uncertain economic outlook due to COVID pandemic.

Net Profit

• SBI’s net profit jumped 330% YoY to Rs.3,581 Cr in Q4 FY20 from Rs.838 Cr in Q4 FY19. However, net profit is declined by 36% from Rs.5,583 Cr in Q3 FY20.
• The Rise in Net Profit YoY is mainly on account of :
  1. One Time Gain of Rs.2,731 Cr from Stake Sale in SBI Cards
  2. Subdued COVID-Related Provisions in Q4 FY20 (Rs.940 Cr)

Analyzing the Balance sheet Q4 FY20

Balance sheet Size

• Bank’s balance sheet size has increased by almost 7.35% YoY on account of Deposit growth of 11.34% mainly due to flight from private sector banks after the Yes Bank crisis.
• Advances reported a moderate growth of 5.6%.

Advances

• The Bank’s Net Loan Book aggregated to Rs.24.22 Lakh Cr as of March 31, 2020, with a rise of 5.6% as compared to Rs.22.93 Lakh Cr as of March 31, 2019.
• As far as, Advances mix is concerned, Retail : Wholesale Advances % share is 59% : 41%.
• The detailed break-up loan book is shown above, where Segment-wise % share in the total loan book is :
  • Personal Retail : 36%
  • Agri : 10%
  • SME : 13%
  • Corporate Banking : 41%

Deposits

• Bank’s deposits aggregated to approximately Rs.32.41 Lakh Cr as of March 31, 2020, a rise of 11.34% as compared to Rs.29.11 Lakh Cr as of March 31, 2019.
• The low cost CASA deposits grew by 9.61% YoY from Rs.12.87 Lakh Cr last year to Rs.14.10 Lakh Cr, with the CASA ratio at 45% in Q4 FY20.

Asset Quality

• Asset quality improved in Q4 FY20, which is a positive sign for the bank.
• Bank’s Gross NPA (Ratio of Gross NPAs to Gross advances) declined significantly to 6.15% as on Q4 FY20 as against 6.94% as on Q3 FY20 and 7.53% as on Q4 FY19.
  1. Corporate NPA is decreasing QoQ as well as YoY, indicating the lowering of NPA pressure from wholesale loans.
  2. However, Retail NPA grew surprisingly mainly on account of Agri NPA, which grew to 15.85% in Q4 FY20 from 11.56% in Q4 FY19 and 13.78% in Q3 FY20.
• While, the Net NPA (Net NPAs to Net advances) dropped to 2.23% as on Q4 FY20 as against 2.65% as on Q3 FY20 and 3.01% as on Q4 FY19.
• The Fresh Slippage growth is higher in Corporate & Agri Loans Segments in FY20 as compared to FY19
• Effect of COVID – Moratorium
  • Around 21.8% Customers availed the Loan Moratorium
  • While in value terms, the Terms Loans under Moratorium are at around 23%.
• The Provision coverage ratio (PCR) of the bank was at 72.48% as on Q4 FY20. PCR is improved significantly YoY as well as QoQ on account of higher provisions in this quarter.
• Bank has increased the provisions substantially to face any unfavorable situation that may arise due to the pandemic and strengthened the balance sheet.
• However, the specific COVID-Related provisions (Rs.940 Cr) are far less than the peer banks, considering the SBI’s asset quality track record.

Key Ratios

• Net Interest Margin (NIM)
  • NIM of the bank eroded YoY as well as QoQ to 2.94% in Q4 FY20 from 3.02% in Q4 FY19 and 3.59% in last quarter, Q3 FY20.
• Cost to Income Ratio
  • The ratio is improved significantly to 52.46% in Q4 FY20 from 55.70% in Q4 FY19 and 55.45% in Q3 FY20.
• Cost of Deposits
  • It is improved on account of the a series of policy repo rate cuts by RBI, due to which the interest rates on Savings Account has cut down up to 2.5-3.5%.
  • Thus, the repo rate cut has significantly helped bank to reduce its cost of deposits.
• Capital Adequacy Ratio
  • It is improved YoY and at 13.60% in Q4 FY20, there is a slight erosion in the ratio QoQ.
• Return on Assets (ROA)
  • Bank’s ROA is very low as compared to the private banks. Still, ROA is seen higher at 0.37% in Q4 FY20 vs 0.09% in Q4 FY19.
• Return on Equity (ROE)
  • ROE is also declined to 7.74% in Q4 FY20 from 8.15% in Q3 FY20, but improved YoY from 0.48% in Q4 FY19.

SBI Group Consolidated Results

Current Valuation

• The current Price to Earnings Ratio of SBI is around 10.5. Whereas, bank’s Historical Median PE ratio is at 12.7.
• Thus, we can see that SBI is currently trading at around 20% discount to its historical valuation.
• The key indicator to watch out for is Bank’s Price to Book Ratio (P/B) which is at 0.71. It indicates that the current valuation of the bank is much below its book value also.
• So, many investors must be thinking to bet on SBI stock due to its low valuation alongside with its better asset quality.
• However, with the current uncertain outlook due to COVID pandemic, the bank is prone to the risk of NPA pressure once the moratorium period is over. Retail NPA are building up surprisingly, which should be addressed by the bank.
• Moreover, SBI has made lower than expected COVID-Related provisions which also adds a great concern to the bank’s near term outlook for its profitability.