State Bank of India (SBI) posted Q2FY21 earnings better than our expectation with improvement in collection efficiency. Collection efficiency of the bank (ex-Agri) stood at 97% for Q2FY21 which has further improved to 97.5% in Oct’20. GNPA/NNPA ratio declined by 16bps/27bps to 5.28% and 1.59% respectively, due to SC interim order on asset classification. However, proforma GNPA stood higher at 5.88%. Bank expects (slippages + restructuring) to be at 2.5% of advances, which looks optimistic guidance on asset quality front. Advances growth was muted at -0.2% QoQ while deposit growth was strong at 1.5% QoQ. Profit for the quarter grew by 52% YoY/9% QoQ to Rs 4,574 cr, on the back of strong NII growth (+15% YoY) and lower provision at -23% YoY/-19% QoQ.
OutlookWe assign an exit P/adj. BV multiple of 0.8x on FY22E adj. BV of INR 245 for standalone bank and use a SOTP approach to value its subsidiaries, to arrive at a revised target Price of INR 295 (earlier Rs 245) and maintain our BUY rating.
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