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Dolat Analysis
SBI (Accumulate)
CMP: ₹280.5
Target: ₹315
The bank reported a loss on account of higher credit costs. Including the exceptional item, the profit has been ₹3,000 crore. The bank has not taken the benefit of the new tax rate (at this juncture), as it would like to consume the DTA. We have factored a higher rate and consume the DTA in the year.
Despite the higher credit costs, GNPA reduced by 10 bps on account of lower slippages (155 bps). The quarter did not witness lumpy slippages. However, this trend is highly evolving. DHFL is likely to slip next quarter, thereby increasing the run rate. We have only marginally reduced our slippages estimate.
We believe the resolution of the large steel account is on the verge of conclusion in its principle form. The Supreme Court has been hearing the case on a daily basis and is likely to have concluded the hearing in the case. We believe the ABV is likely to increase by 7 per cent with this recovery. We like the bank for its ability to gain market share, amidst consolidation among PSUs, key resolutions and ability to maintain its operating performance. We have not factored the recovery of Essar steel. It is likely to improve the book value by 7per cent.
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