Buy SBI; target of Rs 310: Centrum

Centrum's research report on SBI

We retain Buy on State Bank of India (SBIN), with revised SOTP-based TP at Rs 310. SBI Q2’17 results were tad lower to estimates on growth (NII up mere 1.3% YoY) and asset quality (slippages at 3.3% of loans) front. Management, though has retained its stressed asset guidance accretion for FY17E. This is also following reduction in watchlist exposure (1.8% of loans in Q2’17 vs. 2.4% in FY16). Merger process is underway with balance sheet clean-up for associates already recognised in H1’17. Strong balance sheet franchise, respectable capital position and returns profile remain encouraging. Continue to prefer the stock in the PSU space.

While Q2’17 slippages were a tad on the higher side, management has retained its overall stressed asset accretion guidance intact. The bank is in a transition phase and its ability to integrate its associate banks will determine the degree of success/ failure. We however draw comfort in the bank given its strong margin profile, healthy pre-provisioning profits and capital position. Buy, with revised TP at Rs 310. Key risks: Increased NPAs and provisioning.