State Bank of India
BSE SENSEX
28,123
S&P CNX
8,673
18 August 2016
Update
| Sector:
Financials
CMP: INR248
TP: INR290 (+17%)
Buy
Mega merger crosses another hurdle
Share swap to lead to ~1.8% dilution for SBI
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INRm)
Free float (%)
SBIN IN
7,763.6
288 / 148
7/32/-14
1,925.4
28.8
4553
39.8
Event: State Bank of India (SBIN) at its board meeting today approved swap ratio for the
listed three associate banks (SBBJ, SBM and SBT) and the Government of India’s wholly
owned Bhartiya Mahila Bank Limited (BMBL). Parent stake in associate banks will get
cancelled post-merger. Other two associate banks, SBH and SBP, are wholly owned by
SBIN, and their merger thus will not lead to any dilution.
At share swap ratio, 1.8% dilution for SBIN
Financials Snapshot (INR b)
Y/E Mar
2016 2017E 2018E
NII
569
610
693
OP
433
475
499
NP
100
113
146
EPS (INR)
15.7
14.7
24.3
EPS Gr. %
-30.8
-6.4
64.6
Cons. BV (INR)
222
234
253
P/E (x)
15.1
16.2
9.8
P/BV (x)
1.1
0.9
0.9
RoE (%)
7.6
7.9
9.5
RoA (%)
0.5
0.5
0.5
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-16 Mar-16 Jun-15
60.2
60.2
59.2
19.5
18.8
18.3
10.7
10.9
13.6
9.7
10.1
8.9
Please refer note
dated 18 May 2016
SBIN would issue 28/22/22 equity shares of INR1 each for every 10 shares of
INR10 of SBBJ/SBM/SBT. Further, it would issue 44.2m shares in exchange of
1b equity shares of BMBL.
At the share swap ratio, SBBJ/SBM/SBT are valued at INR48.7b/26.2b/38.9b,
which is at 3.4%/(12.4%)/7.3% premium/(discount) to today’s closing price. On
PBV basis, SBBJ/SBM/SBT are valued at 0.7x/0.6x/0.6x FY16, as against 1.1x for
SBIN.
Overall share swap would lead to ~1.8% equity dilution in exchange shares to
be issued to minority shareholders.
Another hurdle crossed; Focus shifts to merged accounts now
FII Includes depository receipts
Post the announcement of the merger (refer
note dated 18 May 2016),
this
was another hurdle to be crossed. Now, the focus will shift to merged number.
In 1QFY17, we saw weak performance at associate banks as SBIN focused on
harmonizing accounting policies and asset classification.
We expect similar weak performance for 2QFY17 as well, and expect SBIN to
report merged financials from 3QFY17.
SBIN has already communicated employee-related one-time cost of INR30b
for additional benefits. Further, it will have to bear additional cost of
INR250m/month for change in salary structure of associate banks.
High long-term synergies; Integration of 70k+ employees is a challenge
Branch rationalization, if executed well, would be one of the key synergy
benefits from the merger. Cost savings on account of treasury operations,
audit, technology, etc. would lower cost-to-income ratio in the long term.
High networth post-merger makes SBIN a default bank for corporate India.
Further, strong branch network and SBI brand will increase retail and SME
business. Liability franchise is likely to get further strength from the merger.
Immediate negative impact would be from pension liability provisions (due to
different employee benefit structures) and harmonization of accounting
policies for NPA recognition. Consolidated CET1 ratio remains at 9.5%+.
Integration of 70k+ employees (34% of parent workforce; size of business is
25% of the parent’s) will be a key challenge.
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
AS Venkata Krishnan
(a.krishnan@motilaloswal.com); +91 22 30102603
/
Rahul Gupta
(Rahul.PGupta@MotilalOswal.com); +91 22 39825505
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

State Bank of India
Dilution Details
New Shares
Dilution Post merger (%)
Dilution Pre merger (%)
136
1.73
1.76
Maintain target price of INR290 (1x Cons. BV+INR33/share for Insurance)
As a merged entity, SBIN will become 24%+ market share entity in the system. In
our view, SBIN may not be an acquirer in PSU bank consolidation now,
considering integration risk related to large mergers and significant
concentration in the system.
Dilution at the current market cap on account of the merger (minority
shareholding in SBBJ/SBT/SBM at 25%/21%/10%) is likely to be ~1.8%. At the
current market cap, total value for minority shareholders of associate banks
stands at INR22.3b.
We value SBIN on a consolidated basis. As integration cost and dilution
associated with the merger is not meaningful, it does not lead to a change in our
target price. BMBL operations are small (loans of ~INR10b; networth of
INR10b+) and thus are unlikely to be meaningful from a merger perspective.
Exhibit 1: Merger Swap Ratio Details
In M
SBBJ
SBM
SBT
BMBL
Shares
CMP (INR) Outstanding
673
70
624
48
509
71
1,000
Other
SBI Holding shareholders Swap Ratio (Acquired
(% to total) (% to total)
company: SBIN)
75.1
24.9
28:10
90.0
10.0
22:10
79.1
20.9
22:10
0
100.0
0.44:10
New SBI
Shares
Issued
48.86
10.56
32.71
44.23
Premium/
Discount
Current
(%)
BVPS (F16) P/BV (F16)
3
963
0.70
-12
973
0.64
7
847
0.60
Source: MOSL, Company
Exhibit 2: SBIN: 1yr forward P/BV (x)
2.7
1.9
1.3
1.1
0.3
0.7
0.9
PB (x)
Peak(x)
Avg(x)
2.3
Min(x)
Exhibit 3: SBIN: 1yr forward P/E (x)
23
18
13
8
3
5.6
10.6
PE (x)
Peak(x)
Avg(x)
18.5
Min(x)
10.6
Source: MOSL, Company
Source: MOSL, Company
18 August 2016
2

State Bank of India
Exhibit 4:
Consolidated
financial performance (INR b)
SBI ASSO. AGG
FY12
NII
% Change (Y-o-Y)
Other Income
% Change (Y-o-Y)
Net Income
% Change (Y-o-Y)
Operating Exp.
% Change (Y-o-Y)
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Loan Gr. (YoY, %)
ROA
Cost to income (%)
Gross NPA (INR b)
Gross NPA (%)
Net NPA ( INR b)
Net NPA (%)
PCR (%)
Tax Rate (%)
FY13
FY14
137
6.2
42
13.5
179
7.8
94
21.3
85
-4.0
46
39
11
28
-24.5
6.8
0.52
52.6
182.1
5.0
107.2
3.0
41.1
28.9
FY15
143
4.3
50
21.3
193
8.3
100
6.6
93
10.2
45
48
16
32
15.2
5.5
0.57
51.8
167.8
4.4
96.9
2.6
42.3
33.6
FY16
152
6.2
55
9.8
207
7.2
103
2.8
104
11.9
79
25
9
16
-50.3
3.7
0.27
49.7
238.0
6.0
131.8
3.4
44.6
36.4
FY12
433
33.1
144
-9.3
576
19.2
261
13.3
316
24.6
131
185
68
117
41.7
14.7
0.91
45.2
396.8
4.4
158.2
1.8
60.1
36.7
FY13
443
2.4
160
11.7
604
4.7
293
12.3
311
-1.6
111
200
58
141
20.5
20.5
0.97
48.5
511.9
4.8
219.6
2.1
57.1
29.3
114 129
10.5 13.6
35
37
3.4
3.7
149 166
8.7 11.2
67
77
9.0 16.0
82
88
8.5
7.3
30
37
52
51
16
14
36
37
0.8
1.4
20.9 17.7
0.90 0.77
44.8 46.8
85.4 115.9
3.0
3.4
44.2 61.4
1.5
1.8
48.3 47.0
30.7
27.4
SBI PARENT
FY14
493
11.2
186
15.7
678
12.4
357
22.0
321
3.3
159
162
53
109
-22.8
15.7
0.65
52.7
616.1
5.0
311.0
2.6
49.5
32.7
FY15
550
11.6
226
21.7
776
14.4
387
8.3
389
21.2
196
193
62
131
20.3
7.5
0.68
49.8
567.3
4.3
275.9
2.1
51.4
32.2
FY16
552
0.4
264
17.1
817
5.3
419
8.4
397
2.1
246
151
50
101
-22.8
12.0
0.47
51.3
813.4
5.5
484.6
3.3
40.4
33.0
FY12
547
27.7
179
-7.1
725
16.9
327
12.4
398
20.9
161
237
84
153
29.3
17.0
0.93
45.1
482.1
4.1
202.4
1.8
58.0
35.3
SBI BANKING BUSINESS
FY13
572
4.7
197
10.2
769
6.1
370
13.1
399
0.3
149
250
72
178
16.0
19.9
0.91
48.1
627.8
4.4
281.0
2.0
55.2
28.9
FY14
630
10.1
227
15.3
857
11.4
451
21.9
406
1.7
205
201
64
137
-23.1
13.1
0.60
52.7
798.2
5.0
418.2
2.7
47.6
31.9
FY15
FY16
693
704
10.0
1.6
276
320
21.6
15.8
969 1,024
13.1
5.7
487
522
7.9
7.3
482
502
18.9
4.0
241
326
241
176
78
59
163
117
19.3 -28.2
7.1
9.8
0.65
0.43
50.2
51.0
735.1 1051.3
4.3
5.6
372.8 616.4
2.2
3.3
49.3
41.4
32.5
33.5
Source: MOSL, Company
18 August 2016
3

State Bank of India
Financials and Valuations
Income Statement (Standalone)
Y/E March
Interest Income
Interest Expense
Net Interest Income
Change (%)
Non Interest Income
Net Income
Change (%)
Operating Expenses
Pre Provision Profits
Change (%)
Provisions (excl tax)
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Cons. PAT post MI
Change (%)
Balance Sheet
Y/E March
Equity Share Capital
Reserves & Surplus
Net Worth
Deposits
Change (%)
of which CASA Dep
Change (%)
Borrowings
Other Liab. & Prov.
Total Liabilities
Current Assets
Investments
Change (%)
Loans
Change (%)
Fixed Assets
Other Assets
Total Assets
Asset Quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
PCR (Excl Tech. W/O)
PCR (Incl Tech. W/O)
E: MOSL Estimates
2012
1,065,215
632,304
432,911
33.1
143,514
576,425
19.2
260,690
315,735
24.6
130,902
184,833
67,760
36.7
117,073
41.7
153,431
43.6
2013
1,196,551
753,258
443,293
2.4
160,368
603,661
4.7
292,844
310,817
-1.6
111,308
199,509
58,459
29.3
141,050
20.5
179,162
16.8
2014
1,363,508
870,686
492,822
11.2
185,529
678,351
12.4
357,259
321,092
3.3
159,353
161,739
52,827
32.7
108,912
-22.8
141,738
-20.9
2015
1,523,971
973,818
550,152
11.6
225,759
775,911
14.4
380,539
395,373
23.1
202,233
193,140
62,124
32.2
131,016
20.3
169,943
19.9
2016
1,636,853
1,068,035
568,818
3.4
281,584
850,402
9.6
417,824
432,578
9.4
294,838
137,741
38,234
27.8
99,507
-24.0
122,246
-28.1
2017E
1,732,288
1,121,865
610,423
7.3
328,097
938,520
10.4
463,993
474,528
9.7
308,266
166,261
53,204
32.0
113,058
13.6
114,453
-6.4
(INR Million)
2018E
2019E
1,886,474 2,150,208
1,193,518 1,367,592
692,956
782,616
13.5
12.9
323,401
354,470
1,016,357 1,137,086
8.3
11.9
517,718
577,982
498,639
559,105
5.1
12.1
284,168
284,579
214,471
274,526
68,631
87,848
32.0
32.0
145,840
186,677
29.0
28.0
188,370
240,886
64.6
27.9
2012
6,710
832,802
839,512
10,436,474
11.7
4,676,066
1.3
1,270,056
809,151
13,355,192
971,632
3,121,976
5.6
8,675,789
14.7
54,665
531,130
13,355,192
2013
6,840
981,997
988,837
12,027,396
15.2
5,390,634
15.3
1,691,827
954,053
15,662,113
1,148,202
3,508,775
12.4
10,456,166
20.5
70,050
478,920
15,662,113
2014
7,466
1,175,357
1,182,822
13,944,085
15.9
5,984,004
11.0
1,831,309
964,130
17,922,346
1,325,496
3,983,082
13.5
12,098,287
15.7
80,022
435,459
17,922,346
2015
7,466
1,276,917
1,284,382
15,767,932
13.1
6,519,051
8.9
2,051,503
1,376,980
20,480,798
1,547,558
4,817,588
21.0
13,000,264
7.5
93,292
1,022,097
20,480,798
2016
7,764
1,434,982
1,442,745
17,307,224
9.8
7,375,531
13.1
2,241,906
1,598,755
22,590,630
1,674,677
4,770,973
-1.0
14,637,004
12.6
103,893
1,404,084
22,590,630
2017E
7,764
1,848,737
1,856,500
18,864,875
9.0
8,380,144
13.6
2,464,193
1,862,037
25,047,605
1,450,524
5,486,619
15.0
16,247,075
11.0
459,304
1,404,084
25,047,605
2018E
7,764
1,951,723
1,959,487
21,694,606
15.0
9,637,165
15.0
2,708,839
2,139,643
28,502,575
1,724,268
6,309,611
15.0
18,359,194
13.0
494,805
1,614,697
28,502,575
2019E
7,764
2,085,566
2,093,330
24,948,797
15.0
11,082,740
15.0
2,978,157
2,460,304
32,480,587
1,905,345
7,256,053
15.0
20,929,482
14.0
532,806
1,856,901
32,480,587
(%)
733,678
363,837
3.44
1.74
50.4
78.3
396,765
158,189
4.45
1.82
60.1
68.1
511,894
219,565
4.76
2.10
57.1
66.6
616,050
310,961
4.97
2.57
49.5
62.9
567,249
275,906
4.27
2.12
51.4
69.1
981,724
558,070
6.52
3.81
43.2
60.7
1,054,664
543,496
6.29
3.35
48.5
66.1
952,779
444,563
5.05
2.42
53.3
73.2
18 August 2016
4

State Bank of India
Financials and Valuations
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost-Int. Bear. Liab.
Avg. Cost of Deposits
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Consolidated RoE
Consolidated RoA
Efficiency Ratios (%)
Cost/Income*
Empl. Cost/Op. Exps.
Busi. per Empl. (INR m)
NP per Empl. (INR lac)
* ex treasury and recoveries
Asset-Liability Profile (%)
Loans/Deposit Ratio
CASA Ratio
Investment/Deposit Ratio
G-Sec/Investment Ratio
CAR
Tier 1
Valuation
Book Value (INR)
BV Growth (%)
Price-BV (x)
Consol BV (INR)
BV Growth (%)
Price-Consol BV (x)
Adjusted BV (INR)
Price-ABV (x)
Adjusted Consol BV
Price-Consol ABV (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
Consol EPS (INR)
Con. EPS Growth (%)
Price-Consol EPS (x)
Dividend Per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
2012
9.2
10.0
7.9
5.7
5.6
3.6
3.8
2013
9.0
9.5
8.2
5.9
6.0
3.0
3.3
2014
8.8
9.1
8.5
5.9
6.0
2.9
3.2
2015
8.8
9.0
8.0
5.8
6.0
3.0
3.2
2016
8.6
8.4
8.8
5.7
6.0
2.9
3.0
2017E
8.2
8.1
8.3
5.5
5.7
2.7
2.9
2018E
7.9
7.9
7.8
5.2
5.4
2.7
2.9
2019E
7.9
7.9
7.8
5.2
5.4
2.7
2.9
16.0
0.9
17.2
0.9
15.9
1.0
16.3
0.9
10.5
0.6
11.1
0.6
11.2
0.7
11.9
0.7
7.6
0.5
7.8
0.4
7.9
0.5
6.8
0.4
9.5
0.5
10.3
0.6
11.3
0.6
12.0
0.6
45.3
65.1
82.2
5.3
50.3
62.8
93.7
6.4
55.6
63.0
107.8
4.8
53.1
61.9
125.9
6.0
54.1
60.1
144.2
4.7
56.7
57.7
161.4
5.4
56.1
56.8
180.9
7.0
55.6
55.9
206.8
9.0
83.1
44.8
29.9
81.9
13.9
9.8
86.9
44.8
29.2
76.7
12.9
9.5
86.8
42.9
28.6
77.4
12.4
9.7
82.4
41.3
30.6
78.4
12.0
9.6
84.6
42.6
27.6
75.5
13.1
9.9
86.1
44.4
29.1
77.8
12.7
9.6
84.6
44.4
29.1
77.7
12.1
9.1
83.9
44.4
29.1
77.6
11.7
8.7
121
19.8
2.0
154
18.3
1.5
105
2.4
132
1.8
17.4
34.0
14.2
22.9
35.9
10.4
3.5
1.4
139
14.8
1.8
177
14.8
1.3
117
2.1
147
1.6
20.6
18.2
12.0
26.2
14.6
9.1
4.2
1.7
150
7.8
1.6
188
6.5
1.3
121
2.0
149
1.6
14.6
-29.3
17.0
19.0
-27.5
11.7
3.0
1.2
164
8.9
1.5
207
10.0
1.2
138
1.8
172
1.4
17.5
20.3
14.1
22.8
19.9
10.5
3.5
1.4
178
8.7
1.4
222
7.2
1.1
128
1.9
159
1.5
12.8
-27.0
19.3
15.7
-30.8
15.1
2.6
1.0
190
6.6
1.3
234
5.3
0.9
141
1.8
166
1.4
14.6
13.6
17.0
14.7
-6.4
16.2
2.5
1.0
204
7.4
1.2
253
8.4
0.9
164
1.5
200
1.2
18.8
29.0
13.2
24.3
64.6
9.8
4.0
1.6
222
8.9
1.1
279
9.9
0.8
189
1.3
236
1.0
24.0
28.0
10.3
31.0
27.9
7.7
5.1
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State Bank of India
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State Bank of India
SECTOR GALLERY
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