State Bank of India share price target

22 May 2018 4QFY18 Results Update | Sector: Financials SBIN reported a loss of INR77.2b, with slippages spiking up to INR336.7b (INR174.35b from known stressed book), even as total revenue exceeded our estimate by 9%. aided by a sharp sequential pick-up in the large- and mid-corporate portfolio, while retail advances growth stood at a healthy 14% YoY (+5% QoQ). Erstwhile SDR and S4A accounts contributed INR56.62b to slippages Total watch-list (including previous standard stressed assets as well as SMA 2 and stressed SMA1 accounts) stood at INR258b. The bank is hopeful of better asset quality trend in ensuing years (increase in resolution of stressed accounts and lowering of the watch-list). Overall, we expect standalone banks PPoP CAGR of 17% over FY18-20E, but PAT growth will be higher as credit costs decrease; RoA is expected to improve to 0.4%/0.7% by FY19/FY20e .SBIN is highly levered to macroeconomic conditions, and an improvement in the investment climate would assuage asset quality fears.

State Bank of India on standalone basis for merged entity has recorded net loss of Rs 2416.37 crore for the quarter ended December 2017 (Q3FY2018). The sharp increase in provision for bad debt and investment depreciation along with dip in treasury income caused the bank to record net losses for Q3FY2018, after consistently recording profit for last 74 straight quarters. As per the figures shared by the bank in its presentation on quarterly results for merged standalone bank, the bank has exhibited 5% increase in net interest income with sequential improvement in net interest margin (NIM) to 2.45% in Q3FY2018 from 2.43% in Q2FY2018....

SBIN reported a loss of Rs 24.2 bn in Q3FY18 on sharp increase in provisions on investments/NPAs. The bank had a divergence in GNPAs worth Rs 232 bn (20% of reported GNPAs) with respect to RBI's risk assessment for FY17.

Maintain BUY with a SOTP of Rs 363 (1.5x Dec-19E core ABV of Rs 173 + Rs 104 subs value). SBINs net loss of ~Rs 24.2bn (vs. an expected profit of ~Rs 15bn) was a bit of a shocker. Elevated LLP (3.92% ann. vs. 3.71% QoQ) and fat MTM provisions (~Rs 40bn) dragged the bank into a loss. Sluggish growth (+1% QoQ) and the slippage spike (5.7% ann.) heaped insult on injury. Declining stressed assets (despite divergence), stable NIMs (~2.6%), decent retail growth (+14%) and tight opex helped an otherwise disastrous show.

After a soft Q1FY18 (first quarter when merged financials were announced) in terms of asset quality, SBI reported an improved Q2FY18 performance with slippages lower at | 10627 crore vs. | 30059 in Q1FY18. Corporate slippages were at | 4538 crore (54% from watch list). As per the management, going ahead, corporate slippages would largely occur from watch list. The watch list fell 13% QoQ and is now at | 21288 crore. Stressed assets (GNPA + RA) were at | 220139 crore (11.6% of loans) vs. | 227406 crore (12.05% of loans) in Q1FY18. Including accounts under...

State Bank of India reported lower-than-expected fiscal second quarter profits after the lender set aside more money to cover the risk of defaults on nonperforming assets. State Bank of India on standalone basis for merged entity has recorded Net Profit of Rs 1581.55 crore for the quarter ended September 2017 (Q2FY2018), compared with Rs 2005.53 crore in Q1FY2018. As per the figures shared by the bank in its presentation on quarterly results for merged standalone bank, the bank has exhibited 3% increase in net interest income with sequential improvement in net interest margin (NIM) to 2.36% in Q2FY2018 from 2.36% in Q1FY2018. The non-interest income jumped 94% driven by gains of Rs 5436.17 crore from sale...

SBIN's Q2FY18 PAT at Rs 15.8 bn was below street and our estimates due to higher-than-expected provisions which included ~Rs 60 bn in provisions for the NCLT cases. The bank has ~Rs 720 bn exposure to all the NCLT cases with an overall coverage of 51.5%.

In the wake of mega merger, SBI stands to gain market share in fast-growing Retail and SME segments. Notably, it has been able to deliver relatively better operating performance vis-vis its peers despite elevated stress on balance sheet. Further, analysis of its stressed assets clearly suggests that it is approaching the end of recognition of stressed loan cycle, which along with higher PCR clearly indicates sharp moderation in credit cost from FY19 onwards. Moreover, SBI has been able to clean-up its loan book effectively, which reasonably assures that it may surprise positively on operating and asset quality front, going forward. We continue to maintain our BUY recommendation on the stock with an SOTP-based Target Price of Rs370 (from Rs355 earlier) valuing parent at 1.7x FY19 Adj. BV implying standalone value at...

Maintain BUY. Our SOTP is Rs 373 (1.6x Sept-19E core ABV of Rs 174 + Rs 96 subs value). After a series of mostly underwhelming quarters, SBINs 2QFY18 numbers point towards better times. The obvious question is whether this can sustain, especially the multi-qtr low slippage (2.4% ann). Core earnings picked up (+5% QoQ), NIM expanded 7 bps (2.43%) and costs were curbed (+6% QoQ) despite the merger. Gains from stake sale flowed through to higher provisions (PCR +430bps), restricting earnings to ~Rs 15.8bn (-21% QoQ). Frontloading coverage on NCLT accounts is also a positive.

In the wake of mega merger, SBI stands to gain market share in fast-growing Retail and SME segments. Notably, it has been able to deliver relatively better operating performance vis--vis its peers despite elevated stress on balance sheet. Moreover, SBI has been able to clean-up its loan book effectively, which reasonably assures that it may surprise positively on operating and asset quality front, going forward. We maintain our BUY recommendation on the stock with an SOTP-based Target Price of Rs355 (valuing parent at 1.6x FY19 Adj. BV implying...