State Bank of Bikaner and Jaipur or SBBJ as most commonly known is the market leader in the state of Rajasthan. The bank has a phenomenal grip on the home turf with ~35-36% deposit share and 25-30% advances market share.
New leadership to drive profitable growth
SBBJ has a new stewardship under Mr. B Sriram who joined as Managing Director in February 2013. Mr Sriram comes from SBI where he was Delhi Circle Chief General Manager looking after the states of Rajasthan, Uttarakand, Delhi and with a large presence in Western UP and parts of Harayana. Our interaction with Mr Sriram reveals that he is a very level headed banker and possesses strong leadership qualities to prosper this bank ahead. Given his sharp understanding of the products and strong focus on asset quality we believe there is right management in place.
Strong platform for high double digit growth
The state of Rajasthan offers tremendous growth opportunities for the bank. During 2012 it was one of the fastest growing state with over 20% GDP growth which has slowed sharply during FY13 as entire economy has slowed down to low single digit growth. Nonetheless the future holds strong promise. Average per capita deposits as well as average per capita credit is half of the national averages and way below even neighboring states.
This means that Rajasthan will continue to have above average deposit growth rate for next decade compared to other states of India. On credit side, its a difficult call, nonetheless, it is safe to assume that at least consumer credit growth will be higher than the rest of the country due to lower penetration combined with expectations of higher per capital income growth. A pro-business state government is certain positive factor for credit growth. But unlike deposit SBBJ would not be heavily relying on Rajasthan for credit growth. A large part of the advances growth comes on the back of parent SBI, which offers an opportunity to its associate to participate in consortium. SBBJ has the freedom to choose the business and it independently studies every proposal before deciding to participate. The lower level of NPAs - 3.6% compared to 6% for SBI - clearly indicates that the bank has been much more prudent in credit assessment and is not blindly participating consortium. On the positive side, the option to participate in consortium allows to optimise the business acquisition cost for the bank.
In Rajasthan all its nearly a banker to the Government - maintains all salary accounts of government employees as well as enjoys income from all the government transactions. It is also very strong in cross selling of insurance and mutual fund products of the parent to its customers which is further adding to fee income. Overall however there is a lot to be done on fee side but management appears to be clueless about how to build this part of the business.
Asset quality has been a cause of concern with Gross NPAs at 3.62% and Net NPAs at 1.9%. It also has a large restructured book of Rs.4300crs i.e. almost 6% of loan book. On the good part, slippages from the restructured books are restricted to ~10% and most of that book continues to be current.
Bank maintains adequate capital with Tier I at 9.1% and total at 12.2%....good enough for 20% growth in balance sheet. RoAs are respectable at 0.96% and RoEs are also respectable at 15%.
At current market cap of Rs.3056crs (CMP - Rs.436) the stock trades at 0.8x FY14 and 0.7x FY15 book of Rs.4084crs and Rs.4820crs respectively. On p/e terms the stock looks even cheaper at 4x FY13 profits of Rs.730crs
Dividend yield at current prices is very good at 3.7%
The merger with SBI could accelerate the gains as indepedent valuation would most probably lead to swap ratio at 8x earnings or 1.2-1.5x book (SBI trades at 1.8-2x) which means you would double money. There is hardly any downside from the current levels.
Strong BUY !!!
