Buy SBI; target of Rs 374: ICICIdirect

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ICICIdirect.com's report on State Bank of India (SBI)

"SBI is the largest bank in India by a wide margin with credit market share of 16% and balance sheet size of ~Rs 19 lakh crore. Even on such a large base, it earns healthy global NIM of ~3.1%, which is commendable. Its stressed asset proportion is manageable at 6.2%. Besides, it is well placed on the capital adequacy front. Credit growth has moderated in H1FY15 at 9% after growing at 17% CAGR in FY09-14. We expect growth at 15% CAGR for both credit, deposit to Rs 1604457 crore, Rs 1860692 crore, respectively. PAT is estimated to grow at 21% CAGR from Rs 10891 crore in FY14 to Rs 15908 crore in FY16E. In near term, with 10 year G-Sec correcting over 50 bps in a quarter, MTM gains on AFS book may lead to reversal of provisions and add to other income, raising PAT."

"Among PSU banks, we like to stay with the largest bank as it is a proxy to the economy in the long term. Return ratios may hover around 11.7% RoE and 0.7% RoA. The management has also indicated plans to unlock value of subsidiaries by selling stakes that will be positive for the bank adding to profits and reserves as well as boosting capital. We maintain our BUY rating and revise the TP upwards to Rs 374 (Rs 323 earlier), valuing the core bank book at 2.4x FY16E ABV (2x earlier) and adding Rs 45 for associate banks & subsidiaries (life & general insurance, AMC, etc)", says ICICIdirect.com research report.

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