LKP Research's research report on State Bank of India
State Bank of India (SBIN) has delivered a strong result on operating and assets quality front. Reported gross slippages stood at ₹24bn v/s ₹97bn in the previous quarter. It’s reported GNPA (3.52% v/s 3.91% in 1QFY23) and NNPA (0.8% v/s 1.0% in 1QFY23) holds steady with stable PCR (incl. AUCA) of 92%. Furthermore SMA2 (7bps v/s 6bps) increased marginally. The bank has witnessed better than expected advance growth (21% YoY & 5% QoQ) led by growth across segments and steady deposit base (10.6% YoY & 3.4% QoQ) sequentially with better liquidity position. Moreover the bank has reported highest ever quarterly PAT of ₹132bn (v/s ₹62bn in 1QFY23) on the back of healthy NII (Domestic NIMs: 3.55%) and lower provision (credit cost: 28bps). The 2QFY23 calculated ROA and ROE stood at 1.04% and 17.4% respectively; surpassing the ROE target of 15%. The bank has established total standard asset and contingent provision of ~₹298bn (101bps of net advances) as on 2QFY23. With improving operating environment, ample contingent buffer and strong growth outlook, we believe the annual ROE target of 15% is achievable in FY23-24E. Therefore, we recommend BUY with target price of ₹663.
Under base case scenario, we expect the bank to post a ROA/ROE of 1%/16.4% by FY24E led by healthy balance sheet growth along with higher PCR and stable asset quality. We recommend BUY with target price of ₹663 (potential upside of 22%). We value the standalone bank with PBV of 1.3xFY24E Adj. BVPS of ₹398 and value of subsidiaries per share of ₹146.
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