Buy State Bank of India; target of Rs 348: HDFC Securities

HDFC Securities' research report on State Bank of India

SBIN’s 4Q operational performance was better than estimates, with strong loan growth (+9% QoQ), NIM improvement (+6bps), healthy fee growth (+48%) and controlled opex (4%). Overall net stressed assets (6.9%) further declined 5% QoQ, with a sharp drop in the watchlist (85bps) and continued improvement in PCR (66%, +300bps QoQ).

Outlook

Disinvestments from non-core investments, unlocking value in subsidiaries and additional provisions (std assets and counter cyclical) provide a cushion to earnings. Massive clean-up in its associate banks provides additional comfort. The pace of resolutions is a key monitorable. Maintain BUY with a SOTP of Rs. 348 (1.6x Mar-19E core ABV of Rs 150 + Rs 24 for associate banks and Rs 83 subs value).