Buy State Bank of India; target of Rs 369: Prabhudas Lilladher

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Prabhudas Lilladher's research report on State Bank of India

SBI's earnings of Rs23.1bn (PLe: Rs29.4bn) was off from expectations despite lower provisions from non-credit and lower opex which was offset by slower topline growth (base had one-off). Bank saw higher slippages of Rs170.0bn from corporate as well as much elevated in Agri/SME. The Bank SMA-1 & 2 also increased by Rs3.0bn QoQ to Rs10.0bn (0.5% of loans) but importantly bank has exposure to 20 standard a/c of Rs190.0bn or 1.0% of loans (Rs25bn in SMA-2) initiated under the new RBI framework for resolution of stressed assets with 70% formed two major accounts. The incremental stress creates higher potential risk to asset quality and provisions impacting improvement in earnings, while stress from non-corporate also remains high especially Agri/SME.

Outlook

We factor in marginal hits to asset quality & earnings (increase CC to 195bps from 140bps for FY20) with revised TP of Rs369 (from Rs427) and retain BUY with valuations still being reasonable at 1.1x core ABV.

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