1QFY2014 Result Update | Banking

Aug 13, 2013

State Bank of India

Performance Highlights

Particulars (` cr) NII Pre-prov. profit* PAT 1QFY14 11,512 7,551 3,241 4QFY13 11,078 7,761 3,299 % chg (qoq) 3.9 (2.7) (1.8) 1QFY13 11,125 8,177 3,752 % chg (yoy) 3.5 (7.6) (13.6)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex SBIN 3m (5.8) 1yr 7.9 62.3 16.7 12.7 8.3 3yr 4.8 (42.4) Banking 109,774 1.2 2550/1575 410,330 10 18,947 5,612 SBI.BO SBIN@IN

`1,605 -

Source: Company, Angel Research

SBI reported a poor operating performance for the quarter, primarily dragged by asset quality challenges. Key highlights of the results were a) moderate NII growth (3.5% yoy as compared to advance growth of 15.7% yoy), b) weak asset quality performance (as slippages surged to 5.3% from 2.7% in previous quarter, while recoveries and upgrades also came in lower sequentially) and outlook on the same remains challenging c) spike in staff expenses (as retirement benefits provisions increased on account of change in longevity assumptions and wage revision provisioning), which would remain elevated for the rest of the fiscal.

Asset quality worsens: During 1QFY2014, the banks advances grew by a

healthy 15.7% yoy. CASA deposits increased by 11.3% yoy, relatively lower than deposits growth of 14.0% yoy and hence the CASA ratio declined by 147bp qoq to 44.7%. Despite strong growth in recoveries from written-off accounts (56.2% yoy), non-interest income (excl. treasury) remained flat, on back of weak fee income performance. Treasury income came in at `1,201cr compared to a `221cr in 1QFY2013. The bank witnessed significant asset quality deterioration during the quarter. Of the slippages worth `13,766cr during the quarter, ~`2,200 of Agri slippages were technical in nature, which the Management expects to upgrade in 2QFY2014. Until the current quarter, a large chunk of incremental slippages for the bank used to come only from the mid-corporate and SME segments, but during the quarter the slippages came across segments (even from large corporate segment), clearly reflecting the weak economic environment. Recoveries/upgrades came in much lower at `2,916cr compared to `5,718cr in 4QFY2013. Hence, gross NPA levels increased by 19.0% qoq. PCR dipped by 598bp sequentially to 60.6% and thus net NPA levels increased by 36.6% sequentially. Additionally, the bank restructured advances worth ~`4,384cr, thereby taking its outstanding restructured book to `44,811cr. As per the Management, further restructuring pipeline stands at ~`10,000cr. Outlook and valuation: The banks has witnessed elevated asset quality pressure for quite some time now and the pressures are unlikely to abate in the near term, in our view, considering recent macro developments in an overall weak macro environment. We have reduced our earnings estimate by 15.4% for FY2014E and 15.5% for FY2015E to reflect in higher staff expenses, likely treasury losses and continued asset quality challenges. As per our estimates, inspite of its core strengths such as high CASA, fee and capital adequacy relative to peers, in terms of core profitability indicators, the bank is estimated to register just 13.7% RoE in FY2014E, while valuations remain highest within PSU banks. Hence, we recommend a Neutral rating on the stock.

(30.4) (15.0)

Key financials (standalone)

Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%) FY2012 43,291 33.1 11,707 41.7 3.6 174.5 9.2 1.3 0.9 16.5 FY2013 44,331 2.4 14,105 20.5 3.2 206.2 7.8 1.2 0.9 16.1 FY2014E 48,295 8.9 13,165 (6.7) 3.0 192.5 8.3 1.1 1.0 16.3 FY2015E 55,451 14.8 16,454 25.0 3.0 240.5 6.7 1.0 1.0 16.8

Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com

Sourabh Taparia
022 3935 7800 Ext: 6872 sourabh.taparia@angelbroking.com

Harshal Patkar
022 3935 7800 Ext: 6847 harshal.patkar@angelbroking.com

Source: Company, Angel Research; Note: CMP as of August 12, 2013

Please refer to important disclosures at the end of this report

State Bank of India | 1QFY2014 Result Update

Exhibit 1: 1QFY2014 performance (standalone)

Particulars (` cr) Interest earned - on Advances / Bills - on investments - on balance with RBI & others - on others Interest Expended Net Interest Income Other income Other income excl. treasury - Fee Income - Treasury Income* - Forex Income - Others Operating income Operating expenses - Employee expenses - Other Opex Pre-provision Profit Provisions & Contingencies - Provisions for NPAs - Provisions for Investments - Provisions for Std. Assets - Other Provisions PBT Provision for Tax PAT Effective Tax Rate (%)
Source: Company, Angel Research;

1QFY14 31,718 23,846 7,361 113 398 20,206 11,512 4,474 3,273 2,558 1,201 383 332 15,986 8,435 5,539 2,895 7,551 2,866 2,266 531 88 (19) 4,685 1,444 3,241 30.8

4QFY13 30,784 23,064 7,035 166 519 19,706 11,078 5,547 5,318 3,873 229 475 970 16,625 8,864 5,612 3,252 7,761 4,181 3,974 (52) 267 (8) 3,580 280 3,299 7.8

% chg (qoq) 3.0 3.4 4.6 (31.9) (23.3) 2.5 3.9 (19.3) (38.4) (34.0) 424.5 (19.4) (65.7) (3.8) (4.8) (1.3) (11.0) (2.7) (31.5) (43.0) (1,121.2) (67.0) 136.6 30.9 415.0 (1.8) 2299bp

1QFY13 28,922 22,135 6,379 151 258 17,798 11,125 3,493 3,272 2,603 221 457 213 14,618 6,441 4,137 2,304 8,177 2,456 2,790 (521) 169 17 5,720 1,969 3,752 34.4

% chg (yoy) 9.7 7.7 15.4 (25.2) 54.5 13.5 3.5 28.1 0.0 (1.7) 443.5 (16.1) 56.2 9.4 31.0 33.9 25.7 (7.6) 16.7 (18.8) (202.0) (48.0) (208.7) (18.1) (26.6) (13.6) (359)bp

FY2013 119,657 90,537 27,201 545 1,374 75,326 44,331 16,035 14,937 11,484 1,098 1,692 1,762 60,366 29,284 18,381 10,904 31,082 11,131 11,368 (962) 750 (25) 19,951 5,846 14,105 29.3

FY2012 106,521 81,078 23,885 414 1,144 63,230 43,291 15,221 15,271 12,091 (49) 1,432 1,748 58,512 26,069 17,457 8,612 32,443 13,960 11,546 1,533 979 (98) 18,483 6,776 11,707 36.7

% chg 12.3 11.7 13.9 31.5 20.1 19.1 2.4 5.3 (2.2) (5.0) (2,321.8) 18.1 0.8 3.2 12.3 5.3 26.6 (4.2) (20.3) (1.5) (162.7) (23.4) (74.9) 7.9 (13.7) (13.7) (736)bp

Exhibit 2: 1QFY2014 Actual vs Angel estimates

Particulars (` cr) Net interest income Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Company, Angel Research

Actual 11,512 4,474 15,986 8,435 7,551 2,866 4,685 1,444 3,241

Estimates 11,477 3,875 15,352 7,188 8,164 2,971 5,194 1,454 3,740

Var (%) 0.3 15.5 4.1 17.3 (7.5) (3.5) (9.8) (0.7) (13.3)

August 13, 2013

State Bank of India | 1QFY2014 Result Update

Exhibit 3: 1QFY2014 performance analysis (standalone)

Particulars Balance sheet Advances (` cr) Deposits (` cr) Credit-to-Deposit Ratio (%) Current deposits (` cr) Saving deposits (` cr) CASA deposits (` cr) CASA ratio (%) CAR (%) Tier 1 CAR (%) Profitability Ratios (%) Cost of deposits Yield on advances Cost of funds Reported NIM (global) Cost-to-income ratio Asset quality Gross NPAs (` cr) Gross NPAs (%) Net NPAs (` cr) Net NPAs (%) Provision Coverage Ratio (%) Slippage ratio (%) Loan loss prov. to avg assets (%)
Source: Company, Angel Research

1QFY14

4QFY13 % chg (qoq) 1.4 (258)bp (19.6) 5.7 0.4 (183)bp (80)bp (48)bp (4)bp (49)bp (4)bp (1)bp (56)bp 19.0 81bp 36.6 73bp (598)bp 256bp (48)bp

1QFY13 % chg (yoy) 916,841 83.1 83,485 390,410 473,895 46.1 13.2 9.4 6.2 10.9 6.4 3.6 44.1 47,156 5.0 20,324 2.2 64.3 5.0 0.8 15.7 14.0 123bp 6.6 12.4 11.3 (147)bp (105)bp (37)bp 1bp (81)bp 1bp (41)bp 870bp 29.1 57bp 47.6 61bp (369)bp 27bp (24)bp

1,060,689 1,045,617 1,257,389 1,202,740 84.4 88,955 438,639 527,594 44.7 12.1 9.0 6.3 10.1 6.4 3.2 52.8 60,891 5.6 29,990 2.8 60.6 5.3 0.6 86.9 110,581 414,907 525,488 46.5 12.9 9.5 6.3 10.5 6.5 3.2 53.3 51,189 4.8 21,956 2.1 66.6 2.7 1.0

4.5 1,102,926

Business growth healthy; Domestic NIM dips by 4bp qoq

During 1QFY2014, the banks advances grew by a healthy 15.7% yoy (1.4% qoq). Advances growth was aided by a healthy increase of 21.2% yoy in mid- corporate book and 19.3% yoy in large corporate book. Retail, Agri and SME advances increased by 16.2%, 12.3% and 9.2% yoy respectively. Healthy retail advances growth was backed by a strong 25.7% yoy increase in Home loans and a 22.6% yoy increase in auto loans. Education loans also grew strongly by 25.1% yoy. Overseas advances increased at a moderate 13.3% yoy. The banks loan book continues to remain well diversified, with no segment accounting for more than 20.0% of the total loan book. Deposits registered a healthy growth of 14.0% yoy. CASA deposits increased by 11.3% yoy, aided by 12.4% yoy growth in saving deposits, while current deposits grew at a moderate 6.6% yoy. CASA ratio declined 183bp qoq and 147bp yoy to 44.7%. As per the Management, the bank has nil CDs (Corporate Deposits) in its funding book. The domestic NIM was lower by 4bp sequentially at 3.4% while the overseas NIM improved by 5bp sequentially to 1.5%. Hence, the overall NIM of the bank declined by just 1bp sequentially to 3.2%. The domestic NIM was lower majorly on account of a 49bp sequential fall in yield on advances, which was primarily on account of aggressive pricing for better quality lending and interest reversals on slippages of `390cr. The domestic cost of deposits for the bank was marginally lower by 4bp sequentially at 6.3%.
August 13, 2013

State Bank of India | 1QFY2014 Result Update

Exhibit 4: Healthy Business growth

Adv. YoY growth 25.0 20.0 83.1 15.0 10.0 5.0 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 83.1 81.8 84.6 Dep. YoY growth 86.9 84.4 84.0 CD ratio (RHS) 88.0

Exhibit 5: CASA franchise remains healthy

Reported domestic CASA ratio (%) 50.0 46.0 42.0 38.0
46.1 45.0 45.5 46.5 44.7

CASA yoy growth (%, RHS) 21.0 14.7

10.1

9.5

9.8

11.3

14.0

80.0
14.7 11.7 18.9 16.1 17.2 16.5 15.6 15.6 20.5 15.2 15.7 14.0

7.0

34.0
76.0

30.0 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 6: Segment-wise advances growth

Segment Mid-corporate Large corporate SME Agri International Home Auto Education Overall advances (gross) Source: Company, Angel Research (%) 21.2 19.3 9.2 12.3 13.3 25.7 22.6 25.1 15.7

Exhibit 7: Loan book remains well-diversified

Retail 19% Others 1% International 16%

Agricultural 12%

MidCorporate 19% Large Corporate 16%

SME 17%
Source: Company, Angel Research

Exhibit 8: YoA declined by 49bp qoq

(%) 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
Source: Company, Angel Research

Exhibit 9: Overall NIM came off by 1bp sequentially

(%) 4.0

10.86

10.87

10.75

3.57

10.54 10.05

3.5 3.0 2.5 2.0 1.5 1QFY13

3.34

3.31

3.17

3.16

2QFY13

3QFY13

4QFY13

1QFY14

Source: Company, Angel Research

August 13, 2013

State Bank of India | 1QFY2014 Result Update

Despite higher recoveries, non-interest income (excl. treasury) remained flat, on back of weak fee income performance
During the quarter, non-interest income (excluding treasury) for the bank remained flat on a yoy basis at `3,273cr, which was also on account of higher recoveries, as fee income performance remained weak. Recoveries from written-off accounts grew by 56.2% yoy to `302cr during the quarter. Fee income de-grew by 1.7% yoy to `2,558cr. Within fee income, transaction fees increased by 5.1% to `555cr and Misc Fee Income increased 15.8% yoy to `454cr, whereas, income from all other streams such as loan processing charges, commission on business from Govt. and LC commission declined on a yoy basis. As per the Management, the bank has reduced/waived off its fee charges on loan processing, which has led to decline in fee income from that segment. Treasury income for the bank came at `1,201cr during the quarter compared to `221cr in 1QFY2013. Hence, the overall non-interest income for the bank grew by a strong 28.1% yoy.

Exhibit 10: Lower fee income results in muted yoy growth in non interest income
Particulars (` cr) Fee income Treasury Forex Dividend Others Other income Other income excl. treasury
Source: Company, Angel Research

1QFY14 2,558 1,201 383 33 299 4,474 3,273

4QFY13 3,873 229 475 637 333 5,547 5,318

% chg (qoq) (34.0) 424.5 (19.4) (94.8) (10.1) (19.3) (38.4)

1QFY13 2,603 221 457 12 201 3,493 3,272

% chg (yoy) (1.7) 443.5 (16.1) 175.0 49.1 28.1 0.0

Asset quality worsens

On the asset-quality front, the annualized slippage rate for the bank spiked to 5.3%, higher sequentially from 2.7% in 4QFY2013. Out of the `13,766cr slippages during the quarter, ~`2,200cr of Agri slippages were on technical accounts, which the Management expects to upgrade in 2QFY2014. Further, ~`2,000cr worth of advances slipped after their admission for restructuring, which will get upgraded in the next two quarters, depending on implementation of restructuring package. Until the current quarter, a large chunk of incremental slippages for the bank used to come only from the mid-corporate and SME segments, but during the quarter the slippages came across_segments (even from large corporate segment), clearly reflecting the weakening economic environment. Consequently, Gross NPA ratio for the bank in mid-corporate, SME and Agri segments inched upwards to 9.5%, 8.5% and 11.6%, respectively, up from 8.7%, 7.2% and 9.4% in 4QFY2013. Industry wise, slippages came in majorly from trade & services (`1,068cr), iron & steel (`1,843cr), Agro/Food (`948cr) and engineering (`729cr). During the quarter, recoveries/upgrades came in much lower at `2,916cr compared to `5,718cr in 4QFY2013 and `2,797cr in 3QFY2013. Hence, on a
August 13, 2013

State Bank of India | 1QFY2014 Result Update

sequential basis, gross NPA levels were higher by 19.0%. PCR dipped by 598bp sequentially to 60.6% and thus absolute net NPA levels increased by 36.6% sequentially (highest in our coverage banks). As of 1QFY2014, the gross NPA

ratio stands at 5.6% (4.8% in 4QFY2013), while the net NPA ratio stands at 2.8% (2.1% in 4QFY2013) up by 81bp and 73bp sequentially, respectively.
Additionally, the bank restructured advances worth ~`4,384cr during the quarter thereby taking its outstanding restructured book to `44,811cr. As per the Management, further restructuring pipeline stands at ~`10,000cr. Of the restructured book `1,000cr slipped to NPA category during this quarter.

Exhibit 11: Slippages spike sequentially

6.0 5.0 4.0 3.0 2.0 1.0 5.0 1QFY13 3.3 2QFY13 3.8 3QFY13 2.7 4QFY13 5.3 1QFY14 0.8 0.5 Slippages (%) Credit cost (%, RHS) 1.0 0.8 0.6 1.2 0.9 0.6 0.3 -

Exhibit 12: NPA ratios under pressure sequentially

Gross NPAs (%) 6.0 5.0 4.0 3.0 2.0
5.0 2.2 5.2 2.4 5.3 2.6 4.8 2.1 5.6 2.8

Net NPAs (%)

64.3 62.8 61.5

66.6

NPA coverage (%, RHS) 68.0

64.0 60.6 60.0

1.0 -

56.0 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 13: Break-up of provisioning expenses

Particulars (` cr) NPA Standard assets Investments Others Total Provisions 1QFY14 2,266 88 531 (19) 2,866 4QFY13 3,974 267 (52) (9) 4,180 % chg (qoq) (43.0) (67.0) (1,121.2) 111.1 (31.4) 1QFY13 2,790 169 (521) 17 2,456 % chg (yoy) (18.8) (48.0) (202.0) (208.9) 16.7

Source: Company, Angel Research;

Cost-to-income ratio remains on the higher side, on back of moderate growth of 9.4% yoy in operating income as against 31.0% yoy increase in operating expenses
During the quarter, total employee expenses increased by 33.9% yoy to `5,539cr, while other operating expenses were higher by 25.7% to `2,895cr. Within employee expenses, payment to employees increased by 24.9% yoy to `4,315cr (after taking into account provision for impending wage revision), while contribution for employees increased by a much higher 79.7% yoy (as the bank made higher retirement benefits provisions considering a) changes in longevity assumptions [`600cr provided on this count, of the total requirement of `2,400cr, which would be provided for in balance part of the year] and b) provisioning for impending wage revision. The bank has further expanded its already strong branch network to 14,902 branches.

August 13, 2013

State Bank of India | 1QFY2014 Result Update

Exhibit 14: Opex growth trends

Particulars (` cr) Payment to employ. Contrib. for employ. Total staff expenses (A) Rent, taxes and lighting Dep. on property Others Other opex (B) Total opex (A)+(B) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy) 4,315 1,224 5,539 645 265 1,986 2,896 8,435 4,707 905 5,612 683 346 2,223 3,252 8,864 (8.3) 35.2 (1.3) (5.6) (23.4) (10.7) (10.9) (4.8) 3,456 681 4,137 519 202 1,583 2,304 6,441 24.9 79.7 33.9 24.3 31.5 25.4 25.7 31.0

Exhibit 15: Cost-to-income ratio remains elevated

Cost-to-income ratio (%) 60.0 50.0 40.0 30.0 20.0 10.0 44.1 48.6 47.4 53.3 52.8

1.9

1.9

1.9

Opex to average assets (%, RHS) 2.3 2.5 2.1 2.0 1.5 1.0 0.5 -

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

Source: Company, Angel Research

Source: Company, Angel Research

Performance overview of subsidiaries

SBI Life reported a PAT of `213cr for 1QFY2014 as compared to `163cr in 1QFY2013, an increase of 30.7% yoy. SBI Capital Markets registered a PAT growth of 151.9% yoy to `68cr during 1QFY2014. SBI DFHI recorded a PAT of `41cr in 1QFY2014 as compared to a PAT of `27cr in 1QFY2013. SBI Cards and Payment Services posted a PAT of `67cr for 1QFY2014 as against `10cr posted in 1QFY2013. SBI Funds Management recorded a PAT figure of `33cr for 1QFY2014 as against `26cr for 1QFY2013, an increase of 26.9% yoy. SBIs associate banks recorded earnings de-growth of 11.7% yoy to `837cr in 1QFY2014.

August 13, 2013

State Bank of India | 1QFY2014 Result Update

Investment arguments
Strong CASA franchise
SBI has a strong CASA franchise on account of its huge nationwide branch network (~15,000 as of 1QFY2014). As of 1QFY2014, the banks CASA ratio stood at 44.7%, the highest amongst all PSU banks, which even translates in lower Cost of funds for the bank (at 6.4% during 1QFY2014).

Strongest fee income among PSU banks

SBI has a relatively strong share of fee income, owing to its strong corporate and government business relationships. The bank continued its dominance with noninterest income/assets at 1.0% in FY2013 and 0.8% (annualised) in 1QFY2014 (one of the highest among PSU banks).

Outlook and valuation

The bank has witnessed elevated asset quality pressure for quite some time now and the pressures are unlikely to abate in the near term, in our view, considering recent macro developments in an overall weak macro environment. We have reduced our earnings estimate by 15.4% for FY2014E and 15.5% for FY2015E to reflect in higher staff expenses, likely treasury losses and continued asset quality challenges. As per our estimates, in spite of its core strengths such as high CASA, fee and capital adequacy relative to peers, in terms of core profitability indicators, the bank is estimated to register just 13.7% RoE in FY2014E, while valuations remain highest within PSU banks. Hence, we recommend a Neutral rating on the stock.

Exhibit 16: Key assumptions

Particulars (%) Credit growth Deposit growth CASA ratio NIMs Other income growth Growth in staff expenses Growth in other expenses Slippages Coverage Ratio
Source: Angel Research

Earlier estimates FY2014E FY2015E 17.0 17.0 43.4 3.0 9.8 12.5 10.0 2.8 70.0 17.0 17.0 42.7 3.0 15.5 12.5 10.0 2.4 71.5

Revised estimates FY2014E 16.0 14.0 44.5 3.0 6.5 27.0 12.5 3.5 61.0 FY2015E 17.0 17.0 43.8 3.0 11.3 10.0 2.8 64.0

August 13, 2013

State Bank of India | 1QFY2014 Result Update

Exhibit 17: Change in estimates

Particulars (` cr) Net interest income Non-interest income Operating income Operating expenses Pre-prov profit Provisions & cont. PBT Prov. for taxes PAT
Source: Angel Research

FY2014E FY2015E Earlier Revised Earlier Revised Var. (%) Var. (%) estimates estimates estimates estimates 48,802 48,295 (1.0) 56,412 55,451 (1.7) 17,615 66,417 32,672 33,745 11,426 22,319 6,761 15,558 17,097 65,392 35,610 29,782 11,695 18,087 4,922 13,165 (2.9) (1.5) 9.0 (11.7) 2.4 (19.0) (27.2) (15.4) 20,322 76,734 36,457 40,277 11,049 29,228 9,744 19,484 19,015 74,467 36,837 37,630 12,991 24,638 8,184 16,454 (6.4) (3.0) 1.0 (6.6) 17.6 (15.7) (16.0) (15.5)

Exhibit 18: P/ABV band

6,000 5,000 4,000 3,000 2,000 1,000 0
Dec-06 Dec-08 Dec-10 Aug-07 Aug-09 Aug-11 Dec-12
May-12

Price (`)

1.0x

1.5x

2.0x

2.5x

3.0x

Source: Company, Angel Research

Exhibit 19: P/E band

Price(`) 5,000 4,000 3,000 2,000 1,000 0 8x 11x 14x 17x

Sep-05

Sep-07

Sep-09

May-06

May-08

May-10

Sep-11

Jan-05

Jan-07

Jan-09

Jan-11

Source: Company, Angel Research

August 13, 2013

Jan-13

Aug-13

Apr-06

Apr-08

Apr-10

Apr-12

State Bank of India | 1QFY2014 Result Update

Exhibit 20: Premium/Discount to Sensex

20 10 0 (10) (20) (30) (40) (50) (60) (70)
Dec-06 Dec-08 Dec-10 Dec-12 Aug-09 Aug-11 Aug-07 Aug-13 Apr-06 Apr-08 Apr-10 Apr-12

Discount to Sensex

Avg. Historical Discount

Source: Company, Angel Research

Exhibit 21: Angel EPS forecast vs. consensus

Year FY2014E FY2015E
Source: Bloomberg, Angel Research

Angel forecast
241.2 280.4

Bloomberg consensus
216.2 256.0

Var (%)
11.6 9.5

August 13, 2013

10

State Bank of India | 1QFY2014 Result Update

Exhibit 22: Recommendation summary

Company AxisBk FedBk HDFCBk ICICIBk* SIB YesBk AllBk AndhBk BOB BOI BOM CanBk CentBk CorpBk DenaBk IDBI# IndBk IOB J&KBk OBC PNB SBI* SynBk UcoBk UnionBk UtdBk VijBk Reco. Buy Neutral Buy Buy Neutral Neutral Neutral Reduce Neutral Neutral Neutral Neutral Reduce Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,070 331 602 866 21 301 72 60 518 177 39 247 57 278 47 59 70 40 1,064 142 535 1,605 70 56 118 36 37 Tgt. price (`) 1,255 724 1,038 Upside (%) 17.3 20.3 19.9 FY2015E P/ABV (x) 1.2 0.7 2.8 1.2 0.8 1.3 0.4 0.4 0.6 0.4 0.4 0.5 0.6 0.3 0.3 0.3 0.3 0.3 0.8 0.3 0.5 1.0 0.4 0.5 0.4 0.3 0.4 FY2015E Tgt. P/ABV (x) 1.4 3.4 1.5 FY2015E P/E (x) 6.8 6.4 13.3 9.0 4.9 6.1 2.4 3.6 4.2 2.8 3.3 4.1 3.6 2.8 2.2 2.7 2.1 2.6 5.3 2.7 3.2 6.7 3.0 3.6 2.9 1.8 4.2 FY2013-15E EPS CAGR (%) 19.1 2.9 26.3 15.8 5.7 16.9 12.6 (15.1) 8.3 16.2 5.4 (3.4) 40.1 2.3 (3.3) 25.1 (4.2) 57.5 (3.5) 7.4 10.8 8.0 (16.0) 66.4 6.2 54.6 (0.4) FY2015E RoA (%) 1.6 1.0 1.9 1.6 0.9 1.3 0.6 0.5 0.8 0.7 0.5 0.6 0.5 0.7 0.6 0.8 0.8 0.5 1.3 0.6 1.0 0.8 0.6 0.6 0.6 0.6 0.4 FY2015E RoE (%) 18.1 12.3 22.8 15.4 16.2 22.8 12.4 10.0 14.2 13.9 14.1 10.4 12.8 13.5 13.2 13.3 12.4 10.5 16.3 11.1 15.7 14.7 12.8 13.5 13.4 14.7 9.8

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF

Company background
State Bank of India is the largest bank in India, with an asset size of more than `16lakh cr. The bank has the widest network of 14,900+ branches, with dominant presence across all regions of the country, with two-thirds of its branches in rural and semi-urban areas (in comparison, the second largest PSU bank has a total of ~5,900 branches and the largest private sector bank has a total of ~3,300 branches). The bank also has ~186 overseas branches, which account for ~17% of its total loans. It has subsidiaries in life insurance, asset management, credit cards and capital markets, among others; and five regional subsidiary banks (having ~5,100 branches and combined asset size of ~`5.6lakh cr).

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State Bank of India | 1QFY2014 Result Update

Income statement (standalone)

Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY10 23,671 13.4 14,968 17.9 38,640 15.1 20,319 29.8 18,321 2.3 4,396 17.7 13,925 (1.8) 4,759 34.2 9,166 0.5 FY11 32,526 37.4 15,825 5.7 48,351 25.1 23,015 13.3 25,336 38.3 10,385 136.2 14,951 7.4 6,686 44.7 8,265 (9.8) FY12 43,291 33.1 14,351 (9.3) 57,643 19.2 26,069 13.3 31,574 24.6 13,090 26.1 18,483 23.6 6,776 36.7 11,707 41.7 FY13 44,331 2.4 16,035 11.7 60,366 4.7 29,284 12.3 31,082 (1.6) 11,131 (15.0) 19,951 7.9 5,846 29.3 14,105 20.5 FY14E 48,295 8.9 17,097 6.6 65,392 8.3 35,610 21.6 29,782 (4.2) 11,695 5.1 18,087 (9.3) 4,922 27.2 13,165 (6.7) FY15E 55,451 14.8 19,015 11.2 74,467 13.9 36,837 3.4 37,630 26.4 12,991 11.1 24,638 36.2 8,184 33.2 16,454 25.0

Balance sheet (standalone)

Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab & Prov. Total Liabilities Cash balances Bank balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY10 635 65,314 804,116 8.4 71,031 31,980 80,337 FY11 635 64,351 933,933 16.1 79,945 39,624 105,248 FY12 671 83,280 1,043,647 11.7 86,989 40,016 80,915 FY13 684 98,200 1,202,740 15.2 128,954 40,229 94,826 FY14E 684 108,499 1,371,123 14.0 145,770 39,223 109,033 FY15E 684 121,312 1,604,214 17.0 169,676 38,243 130,348

1,053,414 1,223,736 1,335,519 61,291 24,898 295,785 631,914 16.5 4,413 35,113 94,396 28,479 295,601 756,719 19.8 4,764 43,778 54,076 43,087 312,198 867,579 14.7 5,467 53,113

1,565,632 1,774,333 2,064,477 65,830 48,990 350,927 1,045,617 20.5 7,005 47,263 61,701 44,173 394,260 1,212,915 16.0 7,703 53,581 72,190 51,417 450,693 1,419,111 17.0 8,698 62,369

1,053,414 1,223,736 1,335,519 9.2 16.2 9.1

1,565,632 1,774,333 2,064,477 17.3 13.4 16.4

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State Bank of India | 1QFY2014 Result Update

Ratio analysis (standalone)

Y/E March Profitability Ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov./Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis (%) NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage (x) RoE 2.4 0.4 1.9 0.2 2.1 1.3 3.4 2.0 1.4 0.5 0.9 17.7 15.7 2.9 0.9 2.0 0.1 2.0 1.3 3.3 2.0 1.3 0.6 0.7 19.1 13.3 3.4 1.0 2.4 (0.1) 2.3 1.2 3.5 2.0 1.4 0.5 0.9 18.8 16.5 3.1 0.8 2.3 0.1 2.4 1.0 3.4 2.0 1.4 0.4 0.9 17.1 16.2 2.9 0.7 2.2 0.1 2.3 0.9 3.2 2.1 1.1 0.3 0.8 17.2 13.1 2.9 0.7 2.2 0.0 2.3 0.9 3.2 1.9 1.3 0.4 0.8 17.7 14.7 11.1 1.7 1.9 12.3 1.7 1.9 9.2 1.3 2.2 7.8 1.2 2.6 8.3 1.1 2.3 6.7 1.0 2.9 144.4 972.5 30.0 130.1 967.7 30.0 174.5 1,200.1 35.0 206.2 1,364.7 41.5 192.5 1,419.9 37.0 240.5 1,622.2 47.0 3.0 1.7 2.2 0.5 59.2 3.3 1.6 2.8 0.7 65.0 4.5 1.8 3.2 0.9 68.1 4.8 2.1 3.6 0.7 66.6 5.7 2.8 3.5 0.5 61.0 5.8 2.5 2.8 0.6 64.0 47.3 78.6 13.4 9.5 49.4 81.0 12.0 7.8 44.8 83.1 13.9 9.8 44.8 86.9 12.9 9.5 44.5 88.5 12.3 9.3 43.8 88.5 11.3 8.7 2.5 52.6 0.9 15.7 3.0 47.6 0.7 13.3 3.6 45.2 0.9 16.5 3.2 48.5 0.9 16.2 3.0 54.5 0.8 13.1 3.0 49.5 0.8 14.7 FY10 FY11 FY12 FY13 FY14E FY15E

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State Bank of India | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

State Bank of India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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