Buy State Bank of India; target of Rs 280: Dolat Capital Market

Dolat Capital Market's research report on State Bank of India

SBI reported a healthy NII of growth 15% led by NIM expansion, while PPoP grew at 12% YoY adjusted for impact of stake sale in previous quarters. Excluding agri loans, collection efficiency improved to 97% in Sep. Pro forma NPAs were sharply higher at 5.88% (up 60 bps QoQ), led by slippages of Rs140bn or 2.5%. Over 60% of these came from the agri portfolio. However, ~Rs.60bn of these have been already upgraded in Oct. Including the impact of interest reversals, NII growth would be lower at 11% YoY. The bank reiterated its guidance for restructured loans of ~1% and slippages of 1.7% for FY21E. While management feels it is well covered for the anticipated stress, with standard provisions made over the last 3 quarters at ~Rs71bn, loan cover at 0.3% of advances remains low vis a vis private peers (includes 22% provided against standstill NPAs). We factor in stress of 4.5% (including RSA+ slippages) and lower our provisioning estimates for FY22E by ~23%. Improving risk intensity with RWA/assets at 50% and decline in our stress estimates lowers the need for any immediate capital raise. With its industry best CoF and strong digital capabilities, SBI could be a key beneficiary of improving recovery trends particularly given the undemanding valuations.

Outlook

We maintain our BUY rating with a revised TP of Rs280 based on 0.7x Sep-22E ABV for standalone bank and the value of its subsidiaries, implying a P/ABV of 1.4x. The stock currently trades at 1x Sep-22 P/ABV.

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