Buy State Bank of India; target of Rs 600: Motilal Oswal
Motilal Oswal is bullish on State Bank of India recommended buy rating on the stock with a target price of Rs 600 in its research report dated August 20, 2021.
August 23, 2021 / 11:49 AM IST
Motilal Oswal's research report on State Bank of India
SBIN has demonstrated a strong improvement in asset quality, with GNPAs declining by 43% over the past three years, while PCR increased to 68% currently from 40% four years back. Fresh slippages moderated sharply to 1.2% in FY21 (2.5% in 1QFY22), lower v/s many of its private peers. AUCA book stood at INR1.72t - higher than the GNPL pool, with recoveries in the 6-11% range. Over the past five years, the bank has recovered ~INR400b from the AUCA book. We expect the recovery trends to continue as the IBC process gains pace after a long pause due to the COVID-19 restrictions. SBIN appears well positioned to report strong uptick in earnings, led by moderation in credit cost from FY22. The bank has historically delivered over 15% RoE for 10 years, before the worst phase of the corporate cycle hit earnings to the point that it reported back-to-back losses in FY17/FY18. During FY19-21, SBIN has shown a remarkable improvement in asset quality, reducing net NPLs to 1.8% at present from 5.7% in FY18, while PCR stands comparable to many well-run Private Banks.
We estimate 14% CAGR in PPOP over FY21-23E (v/s 6% CAGR over FY18-21). Overall PPOP to provision coverage should strengthen to 2.5x by FY23E (v/s an average of 1.3x over FY18-21), while RoE expands sharply to ~15% and reach their decadal highs in FY23E. SBIN remains among our top Buys in the Banking space with a TP of INR600 (1.4x FY23E ABV+INR190 from subsidiaries/JVs).
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