State Bank of India share price target

2 December 2019 After reporting a sub-optimal performance over the last few years, SBIN appears well positioned to report a strong uptick in earnings. With the overhang on Essar resolution getting clear, recoveries for the bank are expected to be robust at ~INR120b (90% of exposure). This will enable it to further improve upon the PCR and provide toward a few other residual stressed accounts. Our deep-dive analysis on stressed accounts suggests that SBINs exposure to the stressed pool stands at ~2% of total loans, which we believe is manageable. However, according to SBINs disclosure on stressed accounts, net stressed loans (excl. SBIs subs SBI MF, SBI Life, SBI Cards and SBI Cap have displayed a robust performance over the last few years. At CMP, subs account for ~34% of total valuation, while SBIN trades at a discount of 24% to its six-year average (1.2x ABV) (refer page 7 for quick snapshot on subs).

ONE PAGER NOTE

We believe that SBIs long drawn NPA cycle should gradually inch towards normalcy by FY22.

State Bank of India is India's largest bank. The bank operates 21,929 branches globally and has a vast network of 58,567 ATMs/CDMs. It provides a wide range of financial services, such as insurance, credit cards and asset...

We stick to our conservative estimates, as macros and extrinsic factors remain a concern. Positive surprises on asset quality can trigger re-rating. Nevertheless, our TP of Rs 389 (1.3x Sept-21E ABV of Rs 232 + Rs 87 for s Highlights of the recently held SBIN analyst meet include (1) Reconstitution of stressed asset resolution groups and a multi-pronged approach to resolution and recovery, (2) A seemingly well-articulated strategy to reach 1% RoAA, (3) Potential for ramping up subs performance, especially via cross-sell. While the strategy showcased is ambitious and welcome, performance guidance (especially on slippages and LLPs) seems a tad optimistic. ubs) adequately captures potential upsides. Maintain BUY.

30 October 2019 SBINs management provided the baseline guidance on the key financial parameters for FY20/21. It expects the bank to deliver an RoA of 0.4%-0.5% in FY20 and 0.9%-1.0% in FY21, led by (a) credit growth of ~10%/12% with an NIM of 3.15%-3.2%, translating into NII growth of 17%/14% for FY20/21, (b) non-interest income growth of 15% for both years with opex growth sustaining at <10% and (c) a slippage ratio of 2.0%/1.3% in FY20/21, leading to credit cost of 1.8%/1.0%. Corporate slippages are guided at INR220b/INR120b for FY20/21, significantly lower than the historical run-rate. SBIN is targeting PPoP of INR650b/INR750b for FY20/21. Under a stress- case scenario, PPoP is estimated at ~INR700b with an RoA of 0.

Strong Quarter; Corporate Portfolio Concerns Priced in Valuations State Bank of India (SBI) has delivered an impressive performance in 2QFY20 with improving operating metrics, all-round improvement in asset quality, and increased prudential provisioning towards select standard stressed exposures. Healthy treasury gain and proceed from 4.5% stake sale in SBI Life (Rs35bn) aided its bottom-line and higher provisioning. CET 1 ratio rose by 47bps despite exclusion of 1HFY20 profit owing to lower RWA for consumer loans (ex CC receivables) and DTA reversal of Rs30bn over the period. The Bank continues to recognise taxes as per the old tax regime, as it is yet to decide whether to adopt new tax structure for FY20....

While SBIN surprised with a sharp improvement in performance across fronts (reduction in reported stress, NIM expansion and better coverage), we are a tad weary of the sustainability of the pace of this improvement. No material progress has been on large IBC cases and further standard exposure to vulnerable sectors/entities does not bode well for stress; the recent spate of ratings downgrades does not help, either. Still, the worst in terms of asset quality is long behind. This underpins our BUY. A qtr mostly full of positives, 2Q saw improvement in SBINs asset quality as slippages halved and NIM, PCR further expanded. However, theres more than meets the eye. Maintain BUY with an SOTP of Rs 389 (1.3x Sept-21E ABV of Rs 232 + Rs 87 sub value).

State Bank of India's (SBIN) Q2FY20 PAT of Rs 30bn beat consensus estimates due to 17% YoY NII growth.

17 October 2019 After reporting sub-optimal performance in the last few years due to high opex, interest reversals and provisioning pressures, SBIN is now well poised for an earnings recovery. The revival in earnings will be led by steady operating performance at the PPOP level (14% CAGR over FY19-FY21E), recoveries from large NCLT resolutions and normalization of credit cost over FY20E/FY21E v/s average of 3.2% over FY17-FY19. Further, reduction in the corporate tax rate from 30% to 22% should also support earnings; however, FY20E will be impacted due to one-time DTA reversal while full benefits will come in FY21 onwards. SBIs subsidiaries SBI MF, SBI Life Insurance, SBI Cards and SBI Cap Securities have displayed robust performance in the last few years. We note that at CMP, SBINs subs are accounting for ~35% of total valuation and the bank is trading close to its lowest valuation (0.7x FY21E ABV) at least for the past five years (including AQR period) please refer details.