Dolat Capital Market has given Buy recommendation for State Bank of India with a target price of Rs. 425 in its research report issued on Feb 04, 2021

Dolat Capital Market’s research report on State Bank of India

Operating metrics were in-line with NII and PPoP growth 4% and -5% YoY led by a high base of 3QFY20. Pro forma gross NPA declined by 44 bps QoQ to 5.44% led by low pro forma net slippages of Rs24bn. While gross pro forma slippage was at ~Rs80 bn or 1.4%, recoveries of ~Rs60bn from last quarter’s agri book resulted in much lower net pro forma slippage for the quarter. Nonetheless, even the Rs80bn were within management guidance and far below our expectations. Annualized pro forma slippage of 1.4% for 9MFY21 (vs 2.5% for FY20) remains lower than most private banks. Pro forma PCR at 68% also compares well with peers. Standard provision buffers (ex of those made towards pro forma NPAs) stood at ~0.3% of loans. Restructuring portfolio (including potential RSA) stood at 0.8% of loans, well within management guidance of 1% and much below other PSBs at ~2-3% (though slightly higher than large private peers at ~0.5%). 65% of restructuring requests came from corporate accounts. Management reiterated its guidance for restructured loans and slippages of 2.7% for FY21E. Loan growth at 3% QoQ and 8% YoY was slightly above estimates, though most of the growth came from SME and retail book (each up 6% QoQ), with traction in gold loans and x-press credit holding up well. Disbursements under ELCGS stood at 1% of loans. Our earnings upgrade largely led by decline in slippage estimates for FY21E from 2.5% previously to 1.6%. We expect credit costs to normalize at <1.5% for FY22-23E. Driven by NIM expansion (higher CD ratio) and lower credit costs, we factor in RoA/RoE of 0.8%/14% for FY23E. Moreover, the bank will remain a key beneficiary of improving recovery trends.