Buy State Bank of India; target of Rs 245: Dolat Capital

Dolat Capital is bullish on State Bank of India has recommended buy rating on the stock with a target price of Rs 245 in its research report dated July 31, 2020.

Broker Research

August 03, 2020 / 16:13 IST

Dolat Capital's research report on State Bank of India

SBI reported a healthy NII growth of 16% YoY mainly driven by a sharp decline in cost of funds (44 bps QoQ) and increased share of performing loans. Core PPoP grew at 10% YoY against an elevated overall PPoP growth of 36% YoY, which befitted from high treasury gains and SBI life stake sale. SBI provided ~Rs20bn of COVID related provisions during the quarter, with total standard asset provision cover at 0.2% of loans. Moratorium ratio for term loans declined to 9.5% from 23% earlier, where borrowers paying less than 2 EMIs over Mar-June are considered to be under moratorium. Given the difference of approach vs other banks, we believe the number remains less comparable. Limited earning cushion (PPoP/assets at 1.7%) along with low provision buffers remain profitability risks. The bank will also need to shore up its equity capital, though improving risk intensity is helping.

Outlook

Valuations are nonetheless attractive. We maintain our BUY rating with a TP of Rs 245 based on 0.7x FY22E ABV for standalone bank and the value of its subsidiaries, implying a FY22E P/ABV of 1.4x.

For all recommendations report, click here