Buy State Bank of India; target of Rs 383: HDFC Securities

HDFC Securities' research report on State Bank of India

Led by high W/Os (~Rs 173bn) and lower slippages (~Rs 80bn, 1.50%), GNPAs dipped ~8% QoQ (Rs 1.72tn, 7.5%). LLPs were ~24% higher QoQ, resulting in a massive ~19% dip in NNPAs (~3%). Calculated coverage jumped ~500bps QoQ to ~62%. SMA I & II nearly halved QoQ to ~36bps, ex-slippages, driven by the upgrade of a large power exposure. Reducing pools of identified stress should reign in near term slippages. We have factored in slippages of 1.80% over FY 19-21E. The glide path is clearer now.

Outlook

While SBIN’s profits were hit in 4QFY19 by higher provisions, best-in-class coverage was a positive outcome. A possible fund-raise will be book accretive. Maintain BUY with an SOTP of Rs 383 (1.3x Mar-21E ABV of Rs 222 + Rs 95 sub value).