Despite a debilitating economic environment, State Bank of India (SBI) exhibited a strong bottomline for FY09.
The Bank’s FY09 net profit increased 35.5% y-o-y to Rs. 91.2 billion. While the growth in the first three quarters was led by NII, in Q4’09 it was dependent on other income.
For the next few quarters, we foresee SBI’s bottom-line to be pressured by declining yields, higher cost structure, and larger provisioning-outlay required due to rising delinquencies.
The stock currently trades at a P/B multiple of ~1.5x, which we believe is high considering the uncertainty regarding the quantum of the Bank’s delinquencies and the growth in SBI Life’s new-business premium.
We see limited upside from current levels and therefore, downgrade our rating to HOLD.