Result Update: State Bank of India (Improving earnings; slippages remain high; REDUCE; TP: Rs3,000)

State Bank of India

Reco: REDUCE

CMP: Rs3,423

Target Price: Rs3,000

Improving earnings; slippages remain high

·      SBI's net profit at Rs25.0bn, lower than our estimates driven by higher than expected provisions for the merger of State Bank of Indore (SBIndore)

·      Operating performance strong with NII growth of 45% (Rs81bn), operating profit growth of 31.5%. Other highlights (1) CASA at 47% and (2) fee income growth of 22% qoq

·      The slippages continue to remain high at Rs44.1bn for the quarter (Rs41.6bn excluding agri relief NPAs). Provision expenses to remain high at Rs18-19bn in coming quarters

·      We are upgrading FY11E/FY12E estimates by 5.2%6.2% each. ABV estimates upgrade by -2%/+1.4%. Maintain REDUCE with TP of Rs3,000 (1.8x consolidated ABV + subsidiary value)