Your Stock Queries

State Bank of India

Q1: I am holding 250 shares of State Bank of India bought at an average rate of Rs 2050 per share. Shall I add an equal number of shares to bring down the average for long-term investment?

- Gangadhar Joshi, Vadodara, Gujarat

A: State Bank of India (SBI), BSE/NSE Code 500112/SBIN, with a face value of Rs 10, is currently trading at Rs 1891, which is at a 7.75 per cent discount to your acquisition cost. Its 52-week high/low stand at Rs 2475 and Rs 1571 respectively.

SBI is the largest bank in India, providing banking products and services in India and abroad. It is a one-stop shop for all banking needs across the country, whether in urban or rural areas. The bank extends all kinds of loans to customers and has the largest reach. As on 31st March, 2012, it has a network of 14270 branches (14097 domestic and 173 overseas) and 22141 ATMs across the country. During FY12, the bank added 555 domestic branches, 17 overseas branches and 2057 ATMs.

On the financial front for Q1FY13, SBI’s results fell short of the street’s expectations. Its Net Interest Income stood at Rs 1119 crore as against Rs 9699 crore for Q1FY12, witnessing a growth of 14.63 per cent. The net profit witnessed a hefty jump, as it stood at Rs 3752 crore for Q1FY13 as against Rs 1583 crore for Q1FY12. The net interest margins, though, witnessed a drop of five basis points on a YoY basis at 3.57 per cent. The Gross and Net NPAs went up to 4.99 per cent (up 147 basis points YoY) and 2.22 per cent (up by 61 basis points). The bank’s exposure to troubled sectors also remained higher, with infrastructure (11.6 per cent), iron and steel (5.8 per cent) and textiles (four per cent) together constituting 21.5 per cent of the domestic loan book, which is a cause of concern.

Currently, the stock is trading at a price-to-book value of 1.56x. However, we are of the opinion that the scenario is likely to witness an improvement going forward. Hence, we suggest that you to hold on to the stock from a longer-term perspective.

Coal India

Q2: I am holding 350 shares of Coal India purchased at Rs 295 per share. Kindly guide me as to whether I should hold these or exit the counter.

- Ayush Shah, Ghaziabad, Uttar Pradesh

A: Coal India, BSE/NSE Code 533278/COALINDIA, with a face value of Rs 10, is currently trading at Rs 347, with a 52-week high/low of Rs 404/294. The stock is currently trading at a 17 per cent premium to your acquisition cost.

Coal India, together with its subsidiaries, engages in the identification, exploration and production of coal in India. It is a Maharatna company that offers coking coal primarily used in steel making and which also finds an application in metallurgical industries.

On the financial front, the company has reported a decent set of numbers for FY12. The topline witnessed a growth of 24.25 per cent on a YoY basis, and stood at Rs 62415 crore as against Rs 50233.59 crore for FY11. The bottomline witnessed a growth of 36.08 per cent, and stood at Rs 14788 crore as against Rs 10867 crore for FY11.

On the valuations front, the stock is trading at a PE of 14.61x and the EV/EBITDA stands at 9.57x. The company is almost debt-free, which is an added advantage, especially during times like these when the interest rates are on the higher side. The dividend yield of the stock stands at 1.12 per cent. We are of the opinion that you hold on to the stock from a longer-term perspective to generate better returns going forward.