Equity Research Report Report on- State Bank of India(SBI)Submitted by :- Name PG roll no.Aditya GuptaJyoti KhuranaKritika VermaMohit MalikRavinderSurbhi Aggarwal
THE BANKING SECTORThe first bank in India, called The General Bank of India was established in the year 1786. TheEast India Company established The Bank of Bengal/Calcutta (1809), Bank of Bombay (1840)and Bank of Madras (1843).The Banking industry plays a dynamic role in the economic development of a country. Thegrowth story of an economy depends on the robustness of its banking industry. Banks act as thestore as well as the power house of the country’s wealth. They accept deposits from individualsand corporates and lends to the businesses. They use the deposits collected for productivepurposes which help in the capital formation in the country.Today, the Indian Banking System is known the world over for its robustness. The Reserve Bankof India is the central/apex Bank which regulates the functioning of all banks operating withinthe country.The banking system, largely, comprises of scheduled banks (banks that are listed under theSecond Schedule of the RBI Act, 1934). Unscheduled banks form a very small component(function in the form of Local Area Bank).BANKING STRUCTURE IN INDIA
STATE BANK OF INDIA (SBI)State Bank of India (SBI) is the largest commercial bank in India in terms of assets, profits,deposits, number of branches and employees. The slogans of SBI are “With you all the way” and“Pure banking nothing else.” State Bank of India was founded on 1806 at Calcutta as Bank ofCalcutta. The bank has a network of 17000 branches including 4607 branches of its six associatebanks dominates the banking industry in India. The bank has almost 21000 ATMs and a totalworkforce of 221000. Also the bank has more than 82 offices in overseas which are spreadacross more than 32 countries. The bank became the banker to all class of people and it hasIndian’s cultural and ethical values.SWOT ANALYSISStrengthsSBI is the largest bank in India in terms of market share, revenue and assets.As per recent data the bank has more than 13,000 outlets and 25,000 ATM centresThe bank has its presence in 32 countries engaging currency trade all over the worldThe bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank isplanning to go further acquisition in the current FY2012.SBI has the first mover advantage in commercial banking serviceSBI has recently changed its vision and mission statements showing a sign of inclination towardsnew age banking servicesWeaknessLack of proper technology driven services when compared to private banksEmployees show reluctance to solve issues quickly due to higher job security and customers’waiting period is long when compared to private banksThe banks spends a huge amount on its rented buildingsSBI has the largest number of employees in banking sector, hence the bank spends aconsiderable amount of its income in employee’s salary compensationIn spite of modernization, the bank still carries the perception of traditional bank to new agecustomers
SBI fails to attract salary accounts of corporate and many government sector employees salaryaccounts are also shifted to private bank for ease of operations unlike beforeOpportunitiesSBI’s merger with five more banks namely State Bank of Hyderebad, State bank of Patiala, Statebank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are inapproval stageMergers will result in expansion of market share to defend its number one positionSBI is planning to expand and invest in international operations due to good inflow of moneyfrom Asian MarketSince the bank is yet to modernize few of its banking operations, there is a better scope of usingadvanced technologies and software to improve customer relationsYoung and talented pool of graduates and B schools are in rise to open new horizon to so called“old government bank”ThreatsNet profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the yearFY2011This shows the reduce in market share to its close competitor ICICIOther private banks like HDFC, AXIS bank etcFDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tendto switch to foreign banks for better facilities and technologies in banking serviceOther government banks like PNB, Andhra, Allahabad bank and Indian bank are showingCustomer prefer to switch to private banks and financial service providers for loans andmortgages, as SBI involves stringent verification procedures and take long time for processing.
Beta AnalysisBeta of a stock is often defined as the sensitivity of a stock with respect to the market. In otherwords the beta of a stock is 1.5 with respect to the market or index means each 1% raise or fallin the index the stock will raise or fall by 1.5 %.We took the past three month data for the stock prices of State Bank of India-SBIN and the NSE-National stock exchange to calculate the beta for this stock. From the data we calculated theeveryday return on the stock as well as the market prices.To calculate beta the following formula is to be applied:-Beta(SBIN)= Covariance(SBIN;NSE) / Variance(NSE),where SBIN and NSE indicate the dataof the returns on SBIN and NSE.From the data we calculated the following :- 1) Covariance(SBIN;NSE) = 3.56187E-05 2) Variance(NSE) = 3.15857E-05 3) Beta(SBIN) = 1.127 approxThe beta indicates that the stock price of SBIN is directly related to the market price of NSE witha sensitivity level of 1.127Moreover to calculate the expected rate of return we need to substitute values in the followingequation:-E(R)= R(f)+Beta(R(m)-R(f))R(F)=risk free rate of return= 5%R(m)= market risk= 9.2906E-05This gives E(R)= 0.0064891
Financial AnalysisHorizontal AnalysisWe collected the past four year’s financial data for State Bank of India including the BalanceSheet, the Cash flow and the Annual Result data and with the horizontal analysis found thefollowing major findings :- Description 2009 2010 2011 2012 Growth in Sales Turnover 30.313% 11.296% 14.650% 30.871% Growth in Total Expenses 26.877% 27.499% 35.136% -21.942% Growth in Gross Profit 34.762% 7.273% 4.202% 48.544% Growth in Net Profit 35.549% 0.491% -9.836% 41.657% Growth in Earning per Share 34.825% 0.487% -9.850% 34.045% Total Assets 33.666% 9.226% 16.169% 9.135% Investments 45.621% 3.564% 3.433% 5.615% Advances 30.169% 16.481% 19.750% 14.650% Total Liabilities 33.666% 9.226% 16.169% 9.135% Total Debt 35.078% 13.991% 16.136% 11.120% Net Worth 18.182% 13.808% -1.460% 29.183%From the above table we found out that for financial years 2010 and 2011 the company’sperformance had been dipping down leading to a -9% net profit in 2011. But in the financial year2012 there was a significant rise in the sales and profits and a decrease in the total expenses. Themain cause of this rise was an increase in demand for loans and in the net interest margin for SBIof 3.89%.It is also expected that there will be a significant rise of about 16-18% in the demand for loans inthe financial year 2013 hence leading to an expected positive growth in the following yearleading to higher sales and revenue hence higher profits.We can also analyze that the growth in total debt has also significantly gone down since 2009.