Motilal Oswal

SBI (Buy)

CMP: ₹336.2

Target: ₹425

State Bank of India has delivered 28 per cent returns since our last report in October 2019. There have been significant developments over the past two months which have supported this performance: i) Essar Steel resolution enabling significant write-backs for banks; ii) upcoming listing of its cards subsidiary at proposed valuation of ₹60,000 crore; and iii) easing of stress in the telecom sector, aided by the recent tariff hikes and the government deferring payment of spectrum fees.

Although the macro environment remains challenging, NSL for State Bank of India at 0.8 per cent of loans are the lowest amongst peers. This, along with anticipated provisioning write-backs, will enable normalisation in credit cost, in our view.

We upgrade our FY20/21 earnings estimates by 15 per cent/12 per cent and project credit cost to decline to 1.3 per cent by FY21. We thus estimate RoA/RoE to improve to 0.8 per cent/14.1 per cent. Maintain ‘Buy’ with a revised target price of ₹425 (1.3x FY21E ABV + ₹114 for subs).

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