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[mehak1]

SBI’s Q2’08 results were in line with our expectations with net profit
increasing 36% yoy to Rs. 16.1 bn. Net interest income rose with modesty by
6.3% yoy to Rs. 37.6 bn, owing to an increase in high cost deposits
coupled with lower yield on investments. This in turn led to an 18 bps
decrease in NIM to 2.84%. Non interest income increased sharply by 42%
to Rs. 20.4 bn, led by a strong growth in foreign exchange and treasury
income. Balance Sheet grew robustly owing to a 26.2% yoy rise in
advances and a 23.3% rise in deposits. The asset quality has remained
virtually moribund with a 4 bits per second yoy decline to 1.63%.
The Bank has received approval from the government to float a rights
issue, which is likely to mobilise around Rs. 167 bn. Further, a huge value
will be unlocked post-listing of SBI holding, which is valued at more than
USD 5 bn. We maintain a positive outlook on the Bank based on its huge
branch network, aggressive expansion plans, and proposed merger with
associate Banks. However, we believe that most of the growth prospects
have been factored into the current market value and thus we maintain
our Hold rating on the stock.

Result Highlights-

Net interest income showed a modest increase of 6.3% yoy to
Rs. 37.6 bn on account of rise in cost of deposits by 97 bps and lower
yield on investments by 18 bps to 6.6%.

REPORT CARD-

PE ratio                  27.85               07/01/08
EPS (Rs)                 86.29              Mar, 07
Sales (Rs crore)            11,616.28          Sep, 07
Face Value (Rs)   10   
Net profit margin (%)      10.12          Mar, 07
Last dividend (%)       140                   09/05/07
Return on average equity 14.5                 Mar, 07