10 reasons why SBI shares are rising post earnings

State Bank of India, the country's top lender, traded at the top of the Nifty index for a second straight day on the back of stellar earnings in the March quarter.At 10.05 a.m., the stock traded 3 per cent higher at Rs 1,999.90 on the BSE, while the Sensex advanced 0.53 per cent at 16,239. The stock had ended nearly 5 per cent higher Friday in the biggest single-day gain in more than two months, to 1,940.55 rupees. SBI stock slumped 42 per cent in 2011 on worries about worsening asset quality, as the RBI raised interest rates 13 times between March 2010 and October 2011 to contain price pressures.Here are 10 reasons for SBI's outperformance over the last two sessions.1) Net profit soared to a record Rs 4,050 crore for its fiscal fourth quarter ended March, up from Rs 20.9 crore a year earlier. The bank was expected to post a profit in the range of Rs 3,600 - Rs 3,800 crore. 2) Net interest income in the March quarter rose about 44 per cent to Rs 1,15,900 crore. The net interest margin, a key gauge of profitability, rose to 3.89 per cent in the March quarter from 3.07 per cent a year ago. "We expect to deliver 3.75 per cent in net interest margin in this quarter... we will under promise and over deliver," SBI chairman Pratip Chaudhuri told NDTV Profit today.3) Asset quality has been the biggest cause of concerns for Indian banks, which have witnessed a surge in restructuring of company loans as slowing economic growth hits borrowers' ability to repay debts. As part of the process, banks negotiate relaxed repayment terms with struggling borrowers. Non-performing, or bad, loans at Indian banks increased to 2.9 per cent of the total book at end-December, up from 2.3 per cent in March 2011, according to central bank data. Rating agency CRISIL expects it to rise to 3.2 percent by March 2013.4) However, SBI, which has given loans to some of India's most troubled borrowers including Kingfisher Airlines, said its net non-performing assets (NPA) stood at 1.82 per cent of total loans at the end of March, from 2.22 per cent at end-December."Restructuring has helped in controlling slippages. We have to live with these high restructurings today and look for recoveries tomorrow," Chaudhuri said. "We have declared war on NPAs (non-performing assets) and we seem to be winning," he added.5) The bank set aside Rs 2,837 crore for bad loans in the March quarter, nearly 13 per cent less than in the same period a year earlier, and compared with an 85 per cent jump in provisions in the December quarter. The bank expects asset quality to improve further as it focuses on restructuring some corporate debt and boosts credit recovery mechanisms.6) The bank expects growth of 16-18 per cent in loan demand in the fiscal year that started April 1, Chaudhuri said. The Reserve Bank of India expects loans to grow 17 per cent in 2012/13, against 13 per cent a year earlier. Loan demand in India is expected to pick up this year after the central bank cut its benchmark lending rate in April to help revive an economy that slowed to 6.1 per cent in the three months to December, the weakest annual pace in almost three years. 7) SBI's loan book grew to Rs 8.7 lakh crore at the end of March, up 14.5 per cent from a year earlier. 8) Attractive valuations: SBI shares trade at 8.8 times one-year forward earnings, compared with 11.6 for No. 2 lender ICICI Bank.9) The bank was downgraded by Moody's Investors Service in October because of its thin capital base and worsening asset quality. The Indian government pumped Rs 7,900 crore into the bank in March through a preferential allotment of shares. Post results, the bank said it plans to pitch to Moody's Investors Services for a ratings upgrade.10) Brokerages have turned positive on the stock post stellar earnings: CLSA has upgraded SBI to buy, with a target of Rs 2,350 citing easing pressure on asset quality. Bank of America Merrill Lynch has also upgraded the stock to buy with a target of Rs 2,425..(With inputs from Reuters)

10 reasons why SBI shares are rising post earnings

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