Target: ₹750

CMP: ₹533.20

State Bank of India saw a strong quarter again with a beat on all fronts. NII was higher led by better loan growth that also drove higher NIM. Led by robust business volumes, fee income was healthy while opex was controlled q-o-q.

As a result, PPoP (Pre-provision operating profit) beat estimates by 21 per cent. Credit offtake was again led by home and express loans while corporate growth was weak due to muted capacity utilisation.

However, working capital cycle is picking up as utilisation levels have improved over Sep-Dec’21. Asset quality improved q-o-q as lower slippages drove the reduction in GNPA while coverage on GNPA and SR also improved. With its inherent balance sheet strength, SBI could see strong loan growth once the capex cycle revives.

Company is expected to fare well on the backdrop of continued growth in revenue along with restructuring in the segments, while continued pace of deal wins will further aid the revenue growth. Also, pressure in margin due to higher supply costs, should be offset by cost control initiatives taken by the management.

For 23E/24 we raise loan growth est. by 3 per cent each and reduce provisions. This would positively impact PAT by 10 per cent/4 per cent which coupled with lower stress enhances ABV for FY23E/24E by about 5 per cent each. Hence retaining the multiple at 2.0x on core Sep’23 ABV we raise SOTP based target price from ₹Rs730 to ₹750.

Risks: Lower loan growth and NIM.

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