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India's largest lender State Bank of India's fourth quarter net profit tumbled nearly 99% year-on-year to Rs 21 crore on higher provisioning against non-performing assets and gratuity. This is much below the street expectations.
In an interview with CNBC-TV18, experts like Vaibhav Agrawal, Banking Analyst at Angel Broking, Hemendra Hazari of Nirmal Bang, Dipan Mehta, Member of NSE & BSE and Kajal Gandhi Senior Research Analyst at ICICI Securities gave their insights and views about the performance of the stock ahead.
Hemendra Hazari said, "After these results, we would turn positive on the stock. The results come off far more negative than expectations. But, that is a positive sign because I believe that substantial clean up has taken place in SBI."
Dipan Mehta, Member of NSE & BSE explains, "The miss on the net interest income (NII) is causing the maximum damage because the analyst and market would have assumed that the provisions are one time nature. But, even then, the numbers don’t look that attractive. With these kind of numbers one would have to definitely be a little underweight on SBI and some of the other PSU Banks."
Below is the verbatim transcript of their interview with Mitali Mukherjee, Gautam Broker and Reema Tendulkar of CNBC-TV18. Also watch the accompanying videos.
Q: Is there any more details that you have been able to cull out on what all has gone into the provisioning this time around for SBI?
Hazari: I was expecting about Rs 1,000 crore of net profit for the fourth quarter which was way below the consensus figure between Rs 2,800 to 3,000. It is my understanding that the NK provisioning had to be much higher in the fourth quarter because of some earlier legacy issues of provisioning. Therefore I expected the results to be poor but not so poor as to have reported Rs 20 crore net profit.
Q: I think a lot of people did have at the back of their mind Rs 800 crore kind of figure because of this provisioning. What else do you think has gone into this bottomline performance? I mean there is this total provisioning of 4000, there is provisioning for NPAs. Are there any other details you have been able to pull out for the bottom line hit?
Hazari: In the earlier years SBI had shown a very large profit increase which in my view was not necessary. What you are seeing today is the evening out of the profit numbers of earlier years.
Therefore, what I would understand now that the balance sheet should have been substantially cleaned up. Even though the stock is reacting negatively as I expected it to from now on you could see much better performance.
Although by the first quarter of FY12 also there could be some pressure. But I would expect that to ease by the second and third quarter of this financial year.
Q: What did you expect to see on the net interest income performance though because even that is a disappointment? You can explain to me the bottom line with provisioning but what about the top line performance, how is that gone down for you?
Hazari: This has to be seen in the light of the sharp 50 basis point increase in the base rate and the prime lending rate that SBI announced some days ago. It is very apparent now that the margin was under pressure. It was under pressure because of SBI’s obsession with increasing market share on the credit side.
As I have always maintained that banks which focus on increasing credit market share always running into problems either of margin pressure which is probably what we have seen in SBI’s fourth quarter or at a slightly later stage of NPAs provisioning which is also what we are seeing today.
Also Read: Why SBI reported fall in Q4 profit?
Q: What’s your call in any case on SBI, where do you stand?
Hazari: After these results, we would turn positive on the stocks. I had been negative because I had expected very poor results in the fourth quarter. The results have come off far more negative than my expectations.
But, that is a positive sign because I believe that substantial clean up has taken place in SBI. It was necessary. At this moment in time, I would expect the stock to be negative but I would turn positive at these levels.
Q: What have you made of these numbers so far?
Agrawal: Some amount of bad news is expected on the provisioning front. But if we look at the results, on most of the line there is a negative surprise including on disappointing note even the net interest income has come in below expectation. So all put together of course even on the operating front the numbers are not looking very good.
Q: What would you expect to see by way of margin performance from SBI given this kind of topline performance?
Agrawal: On the face of it although we don’t have all the numbers yet. But it looks like they would have at least 30 bps odd decline in their margins compared to the last quarter at the very least. So, that is quite a substantial decline considering that with this bank good deposit franchise, expected better performance.
Q: One of your peers was pointing was that all the poison so to speak is out with these numbers. Do you have a sense of what the entire provisioning figures stood at if they had indeed met that 70% rate and do you think that has been booked into this quarter as well or is this some thing that’s going to spill over into the next couple of quarters?
Agrawal: You need to go deeper into the numbers to see exactly where they stand. But, there has been some amount of bad news that has been totally taken into this quarter. We have to see the numbers further to know if there were incremental asset quality pressures as well, what the slippages and so on to make final conclusion.
Q: What was your price target and earnings target pre these numbers on SBI and what did you see as a reasonable price to book that the bank should trade at?
Agrawal: We had reduced our target price for the bank after the monetary policy but it was still at about Rs 3,200. We would definitely give it a relook once we are done with the results but as of now our target price is Rs 3,200.
In an interview with CNBC-TV18, experts like Vaibhav Agrawal, Banking Analyst at Angel Broking, Hemendra Hazari of Nirmal Bang, Dipan Mehta, Member of NSE & BSE and Kajal Gandhi Senior Research Analyst at ICICI Securities gave their insights and views about the performance of the stock ahead.
Hemendra Hazari said, "After these results, we would turn positive on the stock. The results come off far more negative than expectations. But, that is a positive sign because I believe that substantial clean up has taken place in SBI."
Dipan Mehta, Member of NSE & BSE explains, "The miss on the net interest income (NII) is causing the maximum damage because the analyst and market would have assumed that the provisions are one time nature. But, even then, the numbers don’t look that attractive. With these kind of numbers one would have to definitely be a little underweight on SBI and some of the other PSU Banks."
Below is the verbatim transcript of their interview with Mitali Mukherjee, Gautam Broker and Reema Tendulkar of CNBC-TV18. Also watch the accompanying videos.
Q: Is there any more details that you have been able to cull out on what all has gone into the provisioning this time around for SBI?
Hazari: I was expecting about Rs 1,000 crore of net profit for the fourth quarter which was way below the consensus figure between Rs 2,800 to 3,000. It is my understanding that the NK provisioning had to be much higher in the fourth quarter because of some earlier legacy issues of provisioning. Therefore I expected the results to be poor but not so poor as to have reported Rs 20 crore net profit.
Q: I think a lot of people did have at the back of their mind Rs 800 crore kind of figure because of this provisioning. What else do you think has gone into this bottomline performance? I mean there is this total provisioning of 4000, there is provisioning for NPAs. Are there any other details you have been able to pull out for the bottom line hit?
Hazari: In the earlier years SBI had shown a very large profit increase which in my view was not necessary. What you are seeing today is the evening out of the profit numbers of earlier years.
Therefore, what I would understand now that the balance sheet should have been substantially cleaned up. Even though the stock is reacting negatively as I expected it to from now on you could see much better performance.
Although by the first quarter of FY12 also there could be some pressure. But I would expect that to ease by the second and third quarter of this financial year.
Q: What did you expect to see on the net interest income performance though because even that is a disappointment? You can explain to me the bottom line with provisioning but what about the top line performance, how is that gone down for you?
Hazari: This has to be seen in the light of the sharp 50 basis point increase in the base rate and the prime lending rate that SBI announced some days ago. It is very apparent now that the margin was under pressure. It was under pressure because of SBI’s obsession with increasing market share on the credit side.
As I have always maintained that banks which focus on increasing credit market share always running into problems either of margin pressure which is probably what we have seen in SBI’s fourth quarter or at a slightly later stage of NPAs provisioning which is also what we are seeing today.
Also Read: Why SBI reported fall in Q4 profit?
Q: What’s your call in any case on SBI, where do you stand?
Hazari: After these results, we would turn positive on the stocks. I had been negative because I had expected very poor results in the fourth quarter. The results have come off far more negative than my expectations.
But, that is a positive sign because I believe that substantial clean up has taken place in SBI. It was necessary. At this moment in time, I would expect the stock to be negative but I would turn positive at these levels.
Q: What have you made of these numbers so far?
Agrawal: Some amount of bad news is expected on the provisioning front. But if we look at the results, on most of the line there is a negative surprise including on disappointing note even the net interest income has come in below expectation. So all put together of course even on the operating front the numbers are not looking very good.
Q: What would you expect to see by way of margin performance from SBI given this kind of topline performance?
Agrawal: On the face of it although we don’t have all the numbers yet. But it looks like they would have at least 30 bps odd decline in their margins compared to the last quarter at the very least. So, that is quite a substantial decline considering that with this bank good deposit franchise, expected better performance.
Q: One of your peers was pointing was that all the poison so to speak is out with these numbers. Do you have a sense of what the entire provisioning figures stood at if they had indeed met that 70% rate and do you think that has been booked into this quarter as well or is this some thing that’s going to spill over into the next couple of quarters?
Q: What was your price target and earnings target pre these numbers on SBI and what did you see as a reasonable price to book that the bank should trade at?
Agrawal: We had reduced our target price for the bank after the monetary policy but it was still at about Rs 3,200. We would definitely give it a relook once we are done with the results but as of now our target price is Rs 3,200.
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