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Q3FY11 analysis: SBI slippage still high, good growth for ITC packaged food, BHEL maintains order book target

Sales and profit were at the higher end of expectations for ITC; an accounting change shows increased revenues for BHEL; provisioning will affect SBI bottom line


Both sales and net profit came in at the higher end of estimates for the cigarettes-to-hotels major. Cigarettes volume growth at 2% was a positive surprise. Sales growth was at 18%.

The soaps business is doing well, but shampoos not so well, and the biscuit category is improving in terms of profitability. The company has entered the instant noodles segment.

Growth this quarter (in non-cigarettes) for branded packaged food was +24% (Sunfeast +28%, Bingo +48%), stationary +50%. Agri business sales grew by 18% driven by higher soya, coffee and leaf tobacco sales and hotel sales grew by 15%. Sales in the paperboard segment were low at 8%.

All eyes are now on the Union Budget, but the general expectation is that after the heavy excise duty hikes in the last two budgets, it is unlikely that there will be a repeat this year.

ITC Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net sales




Net profit

1, 144.2



 Over a year, ITC’s shares (up 38%) have outperformed the Sensex (up 9%) by a huge margin. Even over a three-month period, ITC’s shares (up 2%) have outperformed the Sensex (down 4%). Over a month, ITC’s shares are up 3% compared to a 4% fall on the Sensex.


Due to the accounting change, BHEL’s Q3FY11 revenues increased by 25% y-o-y to Rs8,850 crore and PAT grew by 31% to Rs1,400 crore, in line with market estimates. The change in the method of percentage completion led to revenues being higher by Rs440 crore and net profit by around Rs60 crore.

BHEL booked Rs12,200 crore worth of new orders in the quarter and the management maintained its Rs60,000 crore order inflow target for FY11 (the nine-month FY11 figure is Rs36,400 crore). For FY12, it expects order inflows to be substantially higher than FY11. These orders give it revenue visibility almost until FY15.

Over a one-year period, the shares have not done much and have underperformed the Sensex. Over a three-month period, the shares are down 13% compared to 4% fall on the Sensex. Over a month, the shares are down 6% compared to the 4% fall on the Sensex.

State Bank of India (SBI)

Net interest income came in above expectations and net profit was at the higher end of expectations. Profits were largely driven by an expansion in net interest margins.

The slippage ratio was still high at 2.6% (around Rs 3,800 crore). Loan growth was 22% (against 19% in the September quarter), some way below industry standards. In the current NPL provisions, SBI did not make the additional standard assets provision for its dual-rate home loan portfolio of Rs30,000 crore (10% impact on Q3 PBT). It has also requested RBI to exempt it from additional standard asset provision on dual-rate mortgage loans and extend the time-limit to meet the NPL coverage ratio of 70% by six months to March 2012.

Although the management guidance is that catching up with provisioning coverage and retirement benefit provisions will impact the bottom line in the near term, it is optimistic on the outlook for margins (likely to sustain in Q4) and a decline in asset quality slippages.

Compared to a consistent increase over the last seven quarters, both gross NPLs and net NPLs were almost flat. The bank’s outstanding restructured book was at Rs32,800 crore (about 4.5% of loans). Fresh restructuring was at Rs2,000 crore—including a special dispensation for airlines. Slippage from the restructured book increased to almost 16% compared with 14.5% in the previous quarter.

SBI’s Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net interest income




Employee expenses




Contribution for employees








Net profit




NIMs %




Gross NPLs




Gross NPLs %




SBI’s share price has underperformed the Sensex in the last three months and has fallen by as much as the Sensex over a month. However, the stock was up on results.

 (This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.)


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