Buy State Bank of India; target of Rs 400: ICICI Direct

ICICI Direct's research report on State Bank of India

Asset quality surprised negatively with fresh slippages coming in at Rs 16212 crore vs. Rs 7505 crore in Q4FY19, higher than estimates of Rs 6000-8000 crore. Corporate slippage was higher at Rs 5354 crore vs. Rs 2284 crore QoQ of which Rs 2014 crore is from one state government entity. Agri and SME also had high slippages. Absolute GNPA saw a slight dip QoQ at Rs 168493 crore vs. Rs 172750 crore despite higher slippages as write-offs were also high at Rs 15490 crore. Consequently, GNPA ratio came in flat QoQ at 7.53%, while NNPA ratio rose ~6 bps QoQ to 3.07% after a decline in Q4.

Outlook

We maintain target price at Rs 400, valuing at 1.5x FY21E ABV, factoring in <2% slippage ratio, 0.6% RoA & 10-12% RoE guidance by management.