State Bank of India (SBI) reported a very healthy operational performance for Q3FY09, with a 35% y-o-y growth in net interest income, which clocked in at Rs57.6 billion as against Rs42.6 billion during Q3FY08.
A disproportionate increase in employee expense (as a result of AS-15 adoption) and other operating expenses, however, muted the growth in operating profits at 23% y-o-y, from Rs36.6 billion in Q3FY08 to Rs44.8 billion during the quarter under review.
Though the October-December quarter saw banks going into a capital conservation mode, SBI was still able to grow its loan book at 29%, outperforming the 24% growth reported by the banking system as of December’08.
SBI also benefited from a higher-than-expected growth in its deposit base at 36%, ahead of the system average of 21%.
Despite a steep increase in the pace of loan book growth, the Bank has been able to keep its asset quality ratios under check.
Though SBI’s asset quality parameters are healthy as of date, our numbers, in line with our broader economic view, factor in deterioration in the bank’s asset quality over the next 18 months.
In view of the Q3FY09 performance, we have made minor changes to our deposit mix and earnings estimates for FY09E and FY10E.
We have marginally lowered our target price to Rs1,677 (from the earlier target price of Rs1,679).
Currently, at its CMP of Rs1,042, the stock currently trades at 1.3x and 1.1x our FY09E and FY10E ABVPS estimates respectively. We maintain our BUY recommendation on the stock.