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Thursday, October 29, 2009

State Bank of Travancore:Is it a buy/hold/sell,analysis and future prospects

Scripscan:State Bank of Travancore
cmp:500
Code:532191

Story:State Bank of Travancore (SBT), is a subsidiary of the State Bank Group and also has private share-holders. It the premier bank of Kerala State, India, where it has 580 branches. Overall, SBT has a network of over 712 branches spread over 16 Indian states.The bank provides a range of banking products, which includes the products aimed at Keralites who are working abroad. The bank possess a computerized core banking solution. SBT's total business reaches at Rs.66644 crores, in which the NRI business touched Rs.8755 crores.In the past 9 years SBT"s business grew at 20% CAGR and net profit about 25% CAGR.Bank has been able to maintain its ROE at 20% and margins at about 30%.Gross and net npa reduced drastically from 6.7 and 3.1% in fy03 to 1.6% and 0.6% in fy09 respectievely.Going forward we expect its business to grow at 18% in fy10-fy11.We have assume net interest income growth of 16-18% in fy10-fy11 and np growth of 15-16%in fy11.At current market price stock is available at 0.8 fy11 apv and PE of 3x fy11,which is very attractive given its strong ROE of 25%+ and ROA of 1.3%.We initate a coverage rating with a buy recomendation on the bank with a target price of 1200rs.The key positive factor that makes the bank a good buy are well managed asset quality,stron busines growth,well capitalised with a CAR of 14% and tier 1 of 9%,High margins,high CASA share,strong network base and very high franchise value coupled with 3% dividend yield.

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