Buy SBI; target of Rs 2100: Prabhudas Lilladher

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Buy SBI; target of Rs 2100: Prabhudas Lilladher

Prabhudas Lilladher is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target of Rs 2100 in its January 19, 2012 research report.

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Prabhudas Lilladher is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target of Rs 2100 in its January 19, 2012 research report.

"We met with Mr. Diwakar Gupta, MD and CFO at SBI. Management seemed confident on gradual increase in recoveries/upgrades and low stress from restructuring though 2HFY12 slippages could continue to remain elevated. Growth would continue to remain muted, though high margins would aid operating performance. We maintain our positive view on SBI given much lower stress expected from restructuring but slippage trend would need to moderate <2.3-2.5% (currently 3.0%) for a re-rating beyond Rs2100/share (1.25x FY13 book)."

"(1) Management is comfortable with current restructuring and does not expect a sharp increase. These ties in with our view that SBI's performance on restructuring would hold up relatively well given low Air India/SEB/private power exposure (2) Slippages could continue to remain elevated in 2HFY12 impacted by large a/s like Kingfisher. Though slippages are expected to moderate with lower Agri NPAs, the transition from ~3.0% slippages (currently) to <2.5% (management aim - inline peer group) does not look completely certain to play out in 1HFY13."

"Overall growth trends continue to remain muted and with 9M YTD growth at ~7% (including rupee depreciation impact), we see risk to 16% growth expected with ~Rs650bn accretion to loan book expected in 4Q. With Infra and term lending slowing down, management expects similar credit growth trend in FY13. With ~Rs60bn (0.6% of tier-1l) of infusion expected by Mar-11 and large part of the capital preservation steps likely to play out by Mar-11, we expect SBI's tier-1 could be >8.2-8.3% by Mar-11. Though capital levels would still not be optimum, it addresses near term growth concerns especially in a slow growth environment," says Prabhudas Lilladher research report.

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