Buy State Bank of India; target of Rs 398: HDFC Securities

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HDFC Securities' research report on State Bank of India

After dipping to ~1.5% ann. in 4QFY19, 1QFY20 saw a broad based rise in slippages (~Rs 170bn, 3.15% ann. +18/114%). Corp slippages were ~Rs 54bn (2.62% ann. +45/134%) led by a single PSU power a/c (~Rs 20bn). Agri slippages (~Rs 42bn, 8.4% ann.) saw a steep rise (+54/103%) and were geographically concentrated (~Rs 20bn in MH). 1Q slippages seriously overshot our estimates (we were at ~Rs 430bn for FY20E). Our slippage assumption rises to 2.3% over FY20-21E, in view of challenging macros and a larger stressed pool of loans in sight.

Outlook

SBIN’s mostly in line operating performance in 1QFY20 was marred by higher than expected slippages. Additional stress and slower resolutions will delay the expected RoAA improvement. Maintain BUY. Our SOTP (1.3x Jun- 21E ABV of Rs 228 + Rs 101 sub value) is Rs 398.

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