Absolute valuations at 1.1x Sep-15 book may not look undemanding but SBI’s premium valuations gap with BOB/PNB has narrowed and with some improvement in asset quality in 1H15 there could possibly be a increase in valuation premium again. Accumulate

1. Lilladher
Prabhudas State Bank of India
CMP: Rs2,243 TP: NA* Rating: Accumulate MCap: Rs1,674.3bn
We like SBI on a relative basis to other PSUs especially v/s BOB/PNB for
the following reasons:
Project Finance book qualitatively better than peers: In our analysis of
“Deep dive into US$75bn of risky large corporate/SPVs exposure” we see
that SBI’s project Finance exposure is qualitatively better than peers. While
exposure in the risky Infra assets we evaluated was ~35% of their networth
is similar to peer PSU banks, their exposure is largely to larger groups like
Tata/Adani/Rpower and exposure to gas plants (ex Dabhol/Torrent) and to
smaller IPPs is limited – Hence we would believe restructuring in SBI’s
project finance book will be lower.
Re-lapse rate out of the restructured book to be lower in next 18mnts:
We see that ~60% of the companies in CDR are facing interest coverage
challenges and slippages out of the restructured book is likely to inch up.
SBI’s FY11/12 corporate restructuring as a % of loans was the least and
hence within PSU banks, we believe relapse risk from restructuring is
lower for SBI on a relative basis.
Pensions better provided v/s peers; providing fully for higher life
expectancy unlike peers: Our interactions with an renowned actuary
indicates that SBI is better placed on pension shortfalls than peers. Also,
SBI is one of the first banks to provide for higher life expectancy (Rs24bn
provisions in FY14 relating to higher mortality assumptions unlikely to
repeat).
Absolute valuations at 1.1x Sep-15 book may not look undemanding but
SBI’s premium valuations gap with BOB/PNB has narrowed and with
some improvement in asset quality in 1H15 there could possibly be a
increase in valuation premium again.
* TP under revision
5/13/2014 28
Key Financials (Rs m)
Y/e March FY12 FY13 FY14E FY15E FY16E
Net interest income 578,778 611,602 676,798 779,432 899,102
Growth (%) 27.1 5.7 10.7 15.2 15.4
Operating profit 401,574 403,000 389,247 471,331 549,037
PAT 152,734 177,008 143,006 178,348 229,215
EPS (Rs) 227.6 258.8 191.6 238.9 307.0
Growth (%) 33.7 13.7 -26.0 24.7 28.5
Net DPS (Rs) 35.0 41.5 32.5 43.3 54.3
Source: Company Data, PL Research
Profitability & valuation
Y/e March FY12 FY13 FY14E FY15E FY16E
NIM (%) 69.4 65.9 57.5 60.5 61.1
RoAE (%) 16.1 15.3 10.5 11.6 13.5
RoAA (%) 0.9 0.9 0.6 0.7 0.8
P / BV (x) 1.4 1.2 1.1 1.0 0.9
P / ABV (x) 1.5 1.3 1.4 1.3 1.1
PE (x) 9.9 8.7 11.7 9.4 7.3
Net dividend yield (%) 1.6 1.9 1.5 1.9 2.4
Source: Company Data, PL Research
Stock Performance
(%) 1M 6M 12M
Absolute 12.5 34.1 (2.7)
Relative to Sensex 8.4 17.9 (19.8)

2. Lilladher
Prabhudas Financials
State Bank of India
5/13/2014 29
Income Statement (Rs m)
Y/e March FY12 FY13 FY14E FY15E FY16E
Int. Earned from Adv. 1,113,415 1,264,422 1,514,947 1,714,116 1,955,824
Int. Earned from Invt. 337,052 387,032 426,508 476,219 532,724
Others - - - - -
Total Interest Income 1,471,974 1,679,781 1,974,110 2,228,048 2,532,182
Interest expense 893,196 1,068,179 1,297,312 1,448,615 1,633,080
NII 578,778 611,602 676,798 779,432 899,102
Growth (%) 27.1 5.7 10.7 15.2 15.4
Treasury Income 22,394 14,162 21,850 18,400 17,250
NTNII 159,671 187,155 200,256 228,292 262,535
Non Interest Income 182,065 201,317 222,106 246,692 279,785
Total Income 1,654,039 1,881,098 2,196,216 2,474,739 2,811,967
Growth (%) 24.3 13.7 16.8 12.7 13.6
Operating Expense 359,269 409,920 509,656 554,793 629,850
Operating Profit 401,574 403,000 389,247 471,331 549,037
Growth (%) 22.2 0.4 (3.4) 21.1 16.5
NPA Provisions 155,147 159,973 175,331 216,549 221,586
Investment Provisions 8,556 (9,501) 12,500 - -
Total Provisions 162,444 150,403 187,831 216,549 221,586
PBT 239,129 252,597 201,417 254,782 327,451
Tax Provisions 86,395 75,588 58,411 76,435 98,235
Effective Tax Rate (%) 36.1 29.9 29.0 30.0 30.0
PAT 152,734 177,008 143,006 178,348 229,215
Growth (%) 41.2 15.9 (19.2) 24.7 28.5
Source: Company Data, PL Research
Balance Sheet (Rs m)
Y/e March FY12 FY13 FY14E FY15E FY16E
Par Value 10 10 10 10 11
No. of equity shares 671 684 747 747 679
Equity 6,710 6,840 7,465 7,465 7,465
Networth 1,062,300 1,250,330 1,464,927 1,605,426 1,787,182
Adj. Networth 851,349 962,506 916,229 954,453 1,047,231
Deposits 14,146,894 16,274,026 18,757,828 21,623,789 25,299,719
Growth (%) 12.7 15.0 15.3 15.3 17.0
Low Cost deposits 5,755,887 6,631,254 7,643,340 8,865,207 10,435,494
% of total deposits 40.7 40.7 40.7 41.0 41.2
Total Liabilities 18,262,305 21,289,045 24,486,513 28,198,553 32,812,368
Net Advances 11,636,702 13,926,080 16,154,253 18,738,934 21,924,552
Growth (%) 15.6 19.7 16.0 16.0 17.0
Investments 4,609,491 5,193,932 5,884,110 6,532,985 7,476,512
Total Assets 18,262,305 21,289,045 24,486,513 28,198,553 32,812,368
Source: Company Data, PL Research

3. Lilladher
Prabhudas
Disclaimer
5/13/2014 80
BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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Rating Distribution of Research Coverage
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