Emkay Global Financial has given Buy recommendation for State Bank of India with a target price of Rs. 600 in its research report issued on Aug 05, 2021

Emkay Global Financial’s report on State Bank of India

Q1FY22 operating performance beat estimates on healthy fees/treasury gains, but high provisions led to a 5% miss on PAT at Rs65bn (est. Rs68.4bn). Asset quality performance was mixed, with GNPA up 34bps qoq to 5.3% (led by retail/SME), restructured pool rising moderately to 0.8% of loans (pipeline at 0.1%) and SMA pool flat qoq at 0.5%. Credit growth was moderate at 6% yoy, dragged down by corporate. However, retail remained healthy at 17% yoy, driven by mortgages/car/xpress credit (PL). The corporate proposal pipeline is strong at Rs1.3trn mainly from Infra/steel and should drive growth gradually. This, along with healthy retail growth, should drive up LDR, in turn increasing NIMs/core RoA. SBI has already seen decent NPA clawback of Rs48bn in July with a pickup in collections, while restructuring should reduce SME NPAs. This, along with the transfer of NPAs to NARCL (Rs200bn/0.8% of loans) and resolutions via NCLT, should meaningfully bring down NPAs. We trimmed earnings estimates for FY22-23 by 5/3%, but expect the bank to deliver 13-15% RoE over FY22-24E (seen before AQR).

Outlook

Retain Buy/OW in EAP with a TP of Rs600, valuing core bank at 1.4x Sep’23E ABV and subs/investments at Rs185, leading to a 32% upside. SBI is the second best pick after ICICI, and we believe that better-than-expected growth/asset quality movement could provide further upsides to earnings/valuations.

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