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Centrum Broking
SBI (Buy)
CMP: ₹253.7
Target: ₹473
The Reserve Bank of India came out with a draft scheme of arrangement to resolve YES Bank crises, the scheme stating that SBI will invest 49 per cent, that is, ₹2,450 crore (at issue price of ₹10) in YES Bank initially. SBI will at most have to put in additional ₹9,310 crore at ₹10 a share. Although this is negative in the short to medium term for SBI shareholders, this can create value over the long-term as the stress book of YES Bank is resolved and market confidence is restored. Additionally SBI has to maintain stake of at least 26 per cent for three years. We like State Bank of India for its improving margins, funding franchise, and improving coverage ratios, along with the subsidiaries’ profitable performance.
Factoring in YES Bank losses in FY21E, we cut our FY21 RoA/RoE estimates by 0.1 per cent/2.0 per cent and maintain ‘buy’ with target price of ₹473 (earlier ₹481).
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