Buy State Bank of India; target of Rs 427: Prabhudas Lilladher

Prabhudas Lilladher's research report on State Bank of India

SBI's core performance was better off than expectations on back of higher other income led by continued strong recovery from W.off a/c, decent NII and relatively good opex control. Earnings were dented on back of sharp provision rise based on ageing of certain legacy NPAs in the NCLT List -1 taking PCR to ~100%. Also, asset quality improved on back of lower slippages (Rs79.6bn or 1.6% of loans) v/s expectations and also incorporating few of the recent stress names. Going ahead, higher recoveries & lower slippages should improve asset quality, while better PCR of +60% (70% on corporate book and 93% on NCLT) should translate to normalization in credit cost, helping improve return ratios.

Outlook

We retain BUY with revised TP of Rs427 (from 361) based on 1.5x Mar-21 (rolled over from Sep-20) and Rs88 for subs.