Dolat Capital
SBI (Buy)
CMP: ₹294.20
Target: ₹367
We expect SBI to retain its lead in grabbing the growth opportunity as well as turning of the asset quality cycle. The bank would be receiving ₹2,970 crore of equity infusion from the government. This will be further topped up by the proposed QIP for ₹15,000 crore. We are factoring in the same in our workings which collectively would lead to an equity dilution of 8 per cent on existing equity. The Tier 1 ratio would improve to 11 per cent which would be sufficient to fund growth of 20 per cent over the next couple of years. Net profit is expected to grow at CAGR of 40 per cent during FY15-17.
The bank’s performance on asset quality is in contrast to other PSBs which saw a rise in overall stressed assets portfolio as well as delinquency rates. SBI continues to command premium valuation vis-à-vis its larger PSB peers and rightfully so due to better asset quality trend. However, its discount to the valuation of large private banks has remained elevated, which we believe should revert back closer to its medium-term mean of around 80 bps.
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