Buy SBI; target of Rs 382: Edelweiss

Edelweiss' report on State Bank of India (SBI)

State Bank of India’s (SBI) Q4FY15 PAT of INR37.4bn was broadly in line with our estimates. Key highlights were: 1) overall asset quality exhibited encouraging trend with slippages curtailed (1.5% versus run-rate of 3% over past 6 quarters), healthy recoveries plus sale to ARCs, leading to dip in GNPLs and provision coverage shoring up (>500bps QoQ). Though restructuring was higher, this should be seen in context to Q4FY15 marking end of the RBI’s dispensation; 2) lower NIMs (adjusting for one-off) and elevated opex strained core operating profitability; and 3) earnings were aided by interest on income tax refund and higher treasury income. Intact structural growth levers (strengthened retail liability franchise - SA plus retail-TD at >80%), stabilising core operating performance, healthy capital (tier-1: 9.6%), improving performance by non-banking subsidiaries and macro tailwinds, make SBI our preferred bet in the PSU peer-set. Maintain ‘BUY’.

"Given SBI’s conscious efforts at enhancing quality and focus on aggressive recoveries, aided by improving macros, we expect NPLs to stabilise. Further, given management’s concerted efforts we expect cost-income ratio to lower in turn supporting profitability. Adjusting for non-banking subsidiaries (INR23/share), the stock trades at ~1.2x FY17E ABV (consolidated). Maintain ‘BUY/SO’ with target price of INR382", says Edelweiss research report.

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