Centrum Broking

State Bank of India (Buy)

CMP: ₹298

Target: ₹481

While overall loan growth was low, reported NIM grew marginally (3.05 per cent versus 2.9 per cent q-o-q). Overall loans grew 7.4 per cent y-o-y, led by 17.5 per cent y-o-y growth in the retail book. Retail growth was led by home loans and personal loans. Agri loans rose 5.7 per cent y-o-y. However, corporate and SME loans saw a y-o-y drop. We estimate 10.2 per cent loan growth CAGR over FY20-22E. Cost/income dropped to 50.6 per cent (vs 55.6 per cent q-o-q) aided by controlled staff costs. PPOP spiked 44.3 per cent y-o-y and 23.8 per cent q-o-q. Provision costs were ₹7,250 crore, down 45 per cent q-o-q, aided by a steep q-o-q drop in credit costs. PAT at ₹5,580 crore was up 41.2 per cent y-o-y.

The bank guides for an FY20 RoA of 0.6 per cent and expects NIM (net interest margin) to stay stable.

Valuation and risks: We like SBIN for its improving margins, funding franchise, and improving coverage ratios, all of which indicate a strengthening balance sheet, along with the subsidiaries’ profitable performance. We roll forward our valuations to FY22E, and maintain our target multiple on the core banking business at 1.5x FY22E ABV. Aided by the subsidiaries’ performance, we get an SOTP-based TP of ₹481 (from ₹417 earlier). Maintain ‘buy’.

Risks: slower loan growth and higher-than-expected slippages.

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