Broker's call: SBI (Buy)

CMP: ₹300.25

Target: ₹380

SBI reported PAT of ₹2,310 crore in 1QFY20 (40 per cent below JMFe), with the bottomline miss largely led by provisions (₹9,200 crore, 20 per cent above JMFe). Slippages were elevated in 1QFY20 (₹17,000 crore, 3.4 per cent annualised), with corporate slippages contributing 33 per cent. As a result, specific credit costs were elevated at 2.3 per cent. The SMA pool of the bank is now at ₹10,300 crore (0.5 per cent of loans) — however, the bank has also disclosed another pool of accounts (₹19,100 crore) where inter-creditor agreements are to be signed/likely to be signed in the near future.

Ex-overlaps, the total stress pool of the bank is now at ₹26,800 crore (1.3 per cent of loans). The stress pool includes 2 lumpy accounts (totalling c.₹14,000 crore) — a stressed HFC and a renewable energy solutions provider on which the bank holds total provisions of c.16 per cent (₹2,300 crore). We factor in the increase in the stress pool in our credit cost estimates – we now build slippages of 2.4 per cent (vs 2 per cent earlier) in FY20E, and as a result build credit costs of 1.3 per cent in FY20E (i.e. ₹32,100 crore vs ₹21,500 crore earlier). Consequently, our earnings estimates for FY20E have been cut by c.27 per cent.