Buy State Bank of India; target of Rs 340: HDFC Securities

HDFC Securities' research report on State Bank of India

Though SBIN reported a 3rd consecutive quarterly loss, the improvement in business metrics was heartening. NII (+9% QoQ) was ahead of estimates as NIMs saw a sharp uptick (2.80%, up 30bps). Asset quality actually improved (G/NNPAs down ~5/11% QoQ) as stress accretion eased (slippages at ~3% ann. vs. ~7% QoQ) and 2 NCLT resolutions materialized. Despite the humongous base of 44%+, sequential SA growth of 3% indicates strong liability franchise. The 3% sequential dip in loan book was seasonal. The string of losses is only optically worrisome, coming as it does at the probably end of the stress cycle. Management has beefed up coverage and is has chosen not to avail any dispensation on bond provisioning.

Outlook

The stage is now set for an uptick in loan growth and lower stress accretion. Resolution in NCLT accounts (~Rs 630bn exposure) can make our FY19-20E credit cost (avg ~200bps) assumptions look conservative. Maintain BUY with SOTP of Rs 340 (1.3x Mar-20E core ABV of Rs 170 + Rs 119 subs value).