State Bank of India share price target

State Bank of India is India's largest bank. The bank operates 21,959 branches globally and has a vast network of 58,599 ATMs/CDMs. It provides a wide range of financial services, such as insurance, credit cards and asset...

SBIN's 3Q is not extraordinary if earnings are adjusted for the impact of the large recoveries (recoveries nevertheless). These were on expected lines. Standard exposure to vulnerable sectors remains a source of potential stress. However, we expect the extent of incremental stress to be considerably lower than before. Calc. PCR at ~64%, will enable a reduction in LLPs and hence improvement in RoAEs. This, along with undemanding valuations underpins our stance. SBINs 3Q earnings were significantly ahead of estimates as recoveries boosted core earnings and contributed to a reduction in provisions. Adjusted for this, the qtr was par for the course. Maintain BUY with an SoTP of Rs 418 (1.3x Dec-21E of ABV of Rs 241 + Rs 105 sub value).

State Bank of India (SBI) has delivered largely an in-line performance in 3QFY20. Strong recoveries aided NII growth of 22% YoY and improvement in asset quality (GNPA ratio declined by 25bps QoQ). Lower growth in opex at 3% YoY and 1.3% QoQ aided 44% YoY growth in PPoP. The Bank moved to the lower tax regime during the quarter, which resulted in higher-than-expected tax rate due to the impact of DTA write-down and MAT reversal. Risk optimisation continued with decline in RWA/total assets by 400bps QoQ to 51% against 60% two years ago. Loan book grew by a muted 7% YoY, with 5% YoY growth in domestic advances. However, decline in corporate/ SME advances by 0.5% YoY and 5% YoY respectively impacted overall growth trends even as the...

Operationally was strong with NPA recovery benefitting performance SBI's earnings of Rs55.8bn (PLe: Rs30.0bn) was better on one-off expected benefits from the strong NPA recoveries. Bank also moved to new tax rate by adjusting DTA impact (net Rs13.0bn). Adjusting to one-offs operationally NII was very marginally weak but fee income was quite good coupled with strong control on opex. Key positive was fresh slippages (excluding the HFC A/c)...

Given fragile macro environment, we expect bank would miss on its slippage/credit cost/credit growth guidance for current fiscal factoring in recent large corporate defaults including big telecom company. Despite this, profitability would be strong for current fiscal PAT is estimated to be at 145.7 bn in FY20e vs. 8.6 bn in FY19. For FY20, we estimate slippage ratio, credit cost, credit growth of 2.8%/2%/9% vs. mgmt. guidance of <2%/<1.8%/>10% resp. The saving grace is high PCR of the bank and better corporate resolution pipeline. Apart from this, improvement in cost ratios and expansion in margins would aid the profitability of the bank. More importantly, subsidiaries of the bank are gaining in size and scale, which can...

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...