Buy State Bank of India; target of Rs 373: HDFC Securities

HDFC Securities's research report on BLS International Services

After  a  series  of  mostly  underwhelming quarters, SBIN’s 2QFY18 numbers point  towards  better  times.  The  obvious  question  is whether this can sustain,  especially  the  multi-qtr low slippage (2.4% ann). Core earnings picked  up (+5% QoQ), NIM expanded 7 bps (2.43%) and costs were curbed (+6% QoQ)  despite  the  merger.  Gains from stake sale flowed through to higher provisions  (PCR  +430bps),  restricting earnings to ~Rs 15.8bn (-21% QoQ).

Outlook
Frontloading coverage on NCLT accounts is also a positive. SBIN’s  wide  presence (esp. post merger) will help whenever the bank steps up  credit  growth.  Costs  will  stay  in  control  with  recalibration of branches/employees.   An   improving   NIM   trajectory,  fast  track  NCLT resolutions and monetisaton of non-core assets are key triggers hereon. The strong  CRAR position (13.94%) keeps growth options open. Maintain BUY. Our SOTP is Rs 373 (1.6x Sept-19E core ABV of Rs 174 + Rs 96 subs value). For all recommendations report, click here

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