Sharekhan has given Buy recommendation for State bank of India with a target price of Rs. 534 in its research report issued on Sep 15, 2021

Sharekhan’s research report on State bank of India

State Bank of India (SBI) has pleasantly surprised by keeping asset quality under control during the Q1FY22. Slippages (2.6-2.7% annualised) were higher sequentially, but in line with expectations and better than many private sector banks. In addition, the bank indicated strong recovery in July/August. SBI has a healthy provision cover of 86% (including AUCA) as of Q1FY22. The capital adequacy ratio at 13.66% (Tier-I capital at 11.3%) is comfortable and with the government’s majority holding, capital and liquidity will not be an issue. Net interest margin (NIM) at 2.92% and RoA at 0.6%, are at sub-optimal levels. Normalisation of credit cost and pick up in credit growth should boost RoA and RoE going ahead. SBI’s subsidiaries are performing well. Valuations are attractive too, adjusting for subsidiary valuations of Rs. 156/share.

Outlook

We retain a Buy rating on the stock with revised SOTP-based price target of Rs. 534, valuing the standalone bank at 1.3x FY23 adjusted book value.

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