SBI: Weak core earnings

ANALYSTS' CORNER

JM Morgan Stanley rates State Bank of India (SBI) as "underweight". The bank's Q4 FY06's reported earnings were down 20 per cent y-o-y.

The decline was driven by weak core earnings (core operating profits were down five per cent) and higher taxes.

Net interest income dropped by two per cent (despite strong loan growth), fee income was flat and investment provision spiked (due to redemption losses and held-to-maturity bond amortisation). Subsidiaries' performance was also weak, with earnings decreasing by 30 per cent.

Even NIMs continued to contract.

While loan growth should be good going forward, net interest income progression is likely to be benign.

Moreover, SBI is not making any headway in core fees, resulting in lackluster revenue progression.

The report estimates that reported EPS will decline at 14 per cent CAGR from F2005-08. The decrease would be driven by weak NIMs, lackluster fees and large premium amortisation on the HTM bond portfolio.