Buy SBI; target of Rs 302: KR Choksey

Defying tough operating environment, State Bank of India (SBI) put up a relatively better show beginning the FY17 on an upbeat note. Moderate increase in NPAs (better than expectations), declining slippage trends, decreasing credit costs and improving credit off-take summarizes the healthy earnings for the quarter.  PAT at INR 25.2 bn stood broadly in-line and almost doubled on sequential basis. While NII stayed muted (down 6% Q-o-Q; up mere 4% Y-o-Y) primarily due to NIM compression (20 bps Y-o-Y) on account of base rate cut, the operating metrics looked better for SBI. The operating profits stood well off for the bank on the back of strong other income performance (in the form of treasury gains, forex and dividend income and cross sell income), tax write-backs and controlled opex (216 bps dip Y-o-Y). NIMs witnessed slight moderation at 2.83% (down both Y-o-Y, Q-o-Q) but on expected lines primarily on account of base rate cut.

Strengthening of operating metrics backed by rich franchise, improvement in granular asset quality and staunch capital sufficiency coupled with the recent price run-up, we tweak the valuation multiple higher to 2.0x P/ABV FY18E for the standalone entity and value subsidiaries at INR 47 per share, with a revised SoTP price at INR 302. Maintain BUY recommendation on the stock. At CMP, the stock is trading at 1.7x P/ABV FY18E.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.