Industry: Banking, Insurance, Capital Markets and allied industries
Products: Loans, Credit Cards, Savings, Investment vehicles, SBI Life (Insurance) etc.
Chairman: Shri Om Prakash Bhatt
Founded: Kolkata, 1806 (as Bank of Calcutta)
Headquarters Corporate Centre: Mumbai, India
Employees: 205,896
State Bank of India (SBI) is the largest bank in India. It has often acted as guarantor to the Indian Government, most notably during Chandra Shekhar's tenure as Prime Minister of India. With 11,448 branches and a further 6500+ associate bank branches, the SBI has extensive coverage. State Bank of India has electronically networked all of its branches under Core Banking System (CBS). The bank has one of the largest ATM networks in the region, with more than 9000 ATMs across India. The bank has 141 overseas offices spread over 32 countries as on 31st Dec 2009. It has branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. It has offshore banking units in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings.
2) Analyzing the stock price of SBI by using Graham Rao Method (Value Investing)
Quality Criteria
Ø The company should have paid dividends for the last 10 years.
|
Year |
Dividend (Cr.) |
|
Mar’09 |
1841.15 |
|
Mar’08 |
1357.66 |
|
Mar’07 |
736.82 |
|
Mar’06 |
736.82 |
|
Mar’05 |
657.87 |
|
Mar’04 |
578.93 |
|
Mar’03 |
447.36 |
|
Mar’02 |
315.78 |
|
Mar’01 |
263.15 |
|
Mar’00 |
263.15 |
State Bank of India has paid dividend for last ten years.
Ø The company should have earned profits for the last 10 years.
|
Year |
Profit |
|
Mar’09 |
9121.23 |
|
Mar’08 |
6729.12 |
|
Mar’07 |
4541.31 |
|
Mar’06 |
4406.67 |
|
Mar’05 |
4304.52 |
|
Mar’04 |
4378.72 |
|
Mar’03 |
3105.00 |
|
Mar’02 |
2431.62 |
|
Mar’01 |
1064.25 |
|
Mar’00 |
2051.55 |
State Bank of India has earned profit for past 10 येअर्स
Ø Debt Equity Ratio should not be greater than 1
State Bank of India has 4.718 Debt-Equity Ratio, so this criterion is not satisfied
Ø Current Ratio should at least be 2
Current Ratio is 0.04, so this criterion is not satisfied
Ø The company must have an adequate size (Rs. 100 Cr sales may be taken as adequate size for Indian Companies)
Income: 76479.78 Cr, so this criterion is satisfied
Fair Value Criteria
|
Year |
EPS |
Adjusted EPS |
|
Mar’09 |
143.67 |
143.71 |
|
Mar’08 |
106.56 |
106.39 |
|
Mar’07 |
86.29 |
86.06 |
|
Mar’06 |
83.73 |
83.69 |
|
Mar’05 |
81.79 |
88.54 |
|
Mar’04 |
83.20 |
69.94 |
|
Mar’03 |
59.00 |
59.00 |
|
Mar’02 |
46.20 |
46.20 |
|
Sum of EPS |
637.33 |
|
EPS Growth rate for the last seven years |
18.366% |
|
Avg. EPS for last 7 years |
97.647 |
|
Fair Value |
1952.94 |
|
Current Market Price( as on 09/02/2010) |
1951.25 |
Ø The company should have EPS growth of at least 10% per annum over the last 7 years.
The EPS growth is18.366% and hence greater than 10%, satisfies the given criterion.
Ø CMP value should be less than 1.5 times the BV per share last reporte
BV per share = 912.73
1.5 times of BV per share = 1369.095
But CMP is 1951.25 which is more than 1.5 times the BV, hence this criterion is not satisfied.
Ø The current market price (CMP) of the company stock should be less than the fair value calculated.
Current Market Price is Rs. 1951.25
Fair Value = Rs. 1952.94
So, according to Graham-Rao method State Bank of India stock is undervalued.
3) Applying Piotroski's Model to State Bank of India.
|
Test |
Parameter |
March’08 |
March’09 |
Score |
Comment |
|
Test 1 |
Positive Net Income(Fig. in Rs. Cr) |
|
18131.04 |
1 |
Positive |
|
Test 2 |
Positive Cash Flow (Fig. in Rs. Cr) |
- |
32925.18 |
1 |
Positive |
|
Test 3 |
Earnings Quality(Fig. in Rs. Cr) CFO>Net Income |
|
|
0 |
The cash flow from operating activities is less |
|
|
Cash Flow from Operating Activities |
|
29479.73 |
|
|
|
|
Net Income |
|
18131.04 |
|
|
|
Test 4 |
Decreasing Debt (Fig. in Times) Debt – Total Assets Ratio |
- |
- |
1 |
Assets are increasing |
|
Test 5 |
Increase in working Capital (Current Ratio Fig. in times) |
0.07 |
0.04 |
0 |
Increased by 0.03 |
|
Test 6 |
Increase in asset turnover (Fig. in times) |
0.09 |
0.09 |
0 |
Remained same |
|
Test 7 |
Growth in profitability (Fig. in times) |
11.65 |
12.03 |
1 |
Increased by 0.38 |
|
Test 8 |
No issue of stock |
|
|
1 |
No issue of stock |
|
Test 9 |
Competitive Position(Fig, in %) Return On Assets |
0.93 |
0.95 |
1 |
Increased by 0.02 |
|
|
|
|
Total |
6 |
|
State Bank of India Score = 6/9
We cannot suggest a "BUY" on State Bank of India.
4) Applying Dividend Discount Model (DDM)
Calculation of growth rate in dividend per share using 7 year -
|
Year |
Dividends (Rs. Cr) |
Shares in Issue (nos.) |
Dividend Per Share |
Adjusted DPS |
|
Mar’04 |
578.93 |
634882644 |
9.118693 |
9.11 |
|
Mar’05 |
657.87 |
634880222 |
10.36211 |
10.36 |
|
Mar’06 |
736.82 |
631470376 |
11.66832 |
14.00 |
|
Mar’07 |
736.82 |
526298878 |
14.00003 |
14.00 |
|
Mar’08 |
1,357.66 |
526298878 |
25.79637 |
21.50 |
|
Mar’09 |
1,841.15 |
526298878 |
34.98297 |
29.00 |
|
Mar’10 |
1,904.65 |
526298878 |
36.18951 |
30.00 |
Sum of last 7 Adjusted DPS = 127.97
Growth Rate = 24.67%
During the Graham-Rao analysis, we found that EPS growth rate is 18.366%
Average growth rate is 21.518%
Assuming that this growth rate will continue for next 6 years.(1 to 6 years from the latest year for which DPS is available)
Growth for the next 6 years (7 to 12) will be 50% of 21.518% =10.759 %
Growth for further 6 years (13 to 18) will be 50% of 10.759 % = 5.3795%
Since, State Bank of India is ranked in first 5 companies in Banking industry, we assume the mature growth rate to be 6%.
Risk Free Required Rate of return is 4.88%.
Risk premium is 8.75%.
Beta for State Bank of India is 1.15% using BSE site.
Required Rate of Return for State Bank of India = 4.88 + 1.15 * 8.75 = 14.9425%
Valuation
The value of a share of common stock is the present value of all future dividends. After 18 years we apply the constant growth
|
Year |
Dividend |
Discount Factor |
Present Value |
Growth Factor |
|
1 |
36.4554 |
0.9015 |
32.8645 |
21.518 |
|
2 |
44.2998 |
0.813 |
36.0157 |
21.518 |
|
3 |
53.8323 |
0.7328 |
39.0751 |
21.518 |
|
4 |
64.4159 |
0.6606 |
47.3455 |
21.518 |
|
5 |
79.4921 |
0.5956 |
47.3455 |
21.518 |
|
6 |
96.5972 |
0.5370 |
51.8727 |
21.518 |
|
7 |
117.383 |
0.4841 |
56.8251 |
10.759 |
|
8 |
130.012 |
0.4365 |
56.7502 |
10.759 |
|
9 |
144.000 |
0.3935 |
56.6640 |
10.759 |
|
10 |
159.493 |
0.3548 |
56.5881 |
10.759 |
|
11 |
176.653 |
0.3198 |
56.4936 |
10.759 |
|
12 |
195.659 |
0.2884 |
56.4281 |
10.759 |
|
13 |
216.358 |
0.2600 |
56.2531 |
5.3795 |
|
14 |
227.996 |
0.2344 |
53.4423 |
5.3795 |
|
15 |
240.262 |
0.2113 |
50.7674 |
5.3795 |
|
16 |
253.186 |
0.1905 |
48.2319 |
5.3795 |
|
17 |
266.807 |
0.1717 |
45.8108 |
5.3795 |
|
18 |
281.160 |
0.1548 |
43.5236 |
5.3795 |
|
19 |
310.788 |
|
|
6 |
|
|
3094.8497 |
0.1396 |
432.0410 |
|
|
|
|
Total |
1324.3382 |
|
Current Stock Price of Rs. 1938.55 (As on 16th Nov, 2010)
Value from DDM is 1324.3382
So State Bank of India’s stock is overvalued.
The decision is to sell the stock.
Shwetha.C
IM-16
Roll No- 171
http://knol.google.com/k/narayana-rao/state-bank-of-india-sbi-security/ 2utb2lsm2k7a/ 2238
Posted by Shweta Chidanand
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