CMP: | 457 Target: | 540 (18%) Target Period: 12 months BUY
August 5, 2021 NPA resilience continues; improving outlook…
About the stock: SBI is a public sector bank and also the largest bank in India with
a balance sheet size of over | 45 lakh crore. Particulars Strong liability franchisee with trend setting abilities in terms of rates. Particulars Amount
Best operating metrics in the PSU banking space Market Capitalisation | 407899 Crore 52 week H/L 467/175 Networth | 261280 Crore Face value | 1 Update Result Q1FY22 Results: Steady operating performance; asset quality resilient. Shareholding pattern GNPA rose 34 bps QoQ to 5.32%; restructuring up 28 bps to ~1% Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Promoter 57.6 57.6 57.6 57.6 57.6 NII up 3.74% YoY, NIM up 2 bps QoQ to 2.92, C/I down 260 bps to 51.9% FII 7.9 7.8 9.8 9.9 10.3 Provision buffer at | 29816 crore, including Covid provisions at | 9065 crore DII 24.7 25.5 24.9 24.4 24.2 Others 9.8 9.1 7.7 8.0 7.8
Advances down 0.7% QoQ and deposits up 1.1% QoQ to | 37.2 lakh crore Price Chart
500 20000 What should investors do? SBI’s share price has surged ~2x in the past five years. 400 15000 300 10000 We believe considering overall strength in liability franchisee, decent provisioning 200 cover and quick recovery with unlocking should be positives for SBI. 100 5000 0 0
We retain our BUY rating on the stock.
Feb-19 Feb-20 Feb-21
Aug-19 Aug-20 Aug-21 Target Price and Valuation: We value the bank at ~1.25x FY23E ABV and Aug-18 subsidiaries at ~| 180 per share to arrive at a revised TP of | 540 from | 500 earlier. SBI Nifty Index
Risk to our call
Key triggers for future price performance: GNPA increased from 4.98% to 5.32% QoQ. Overall slippage ratio at 2.47% Healthy recovery in July 2021 depicts resilience on asset quality
Key Risk: (i) Third wave remains a risk Research Equity Retail
Improving credit-deposit ratio, thus, NIMs to aid operational performance for asset quality (ii) volatile recovery in – MSME exposure Additional provisioning to the tune of 1% provides cushion Research Analyst Healthy pipeline to aid business growth and overall performance Kajal Gandhi [email protected]
Alternate Stock Idea: Besides SBI, in our coverage we also like Bank of Baroda. Vishal Narnolia [email protected] Securities ICICI Bank of Baroda is the second largest PSU with decent prospects of meaningful improvement in operational performance Sameer Sawant [email protected]
BUY with target price of | 100
Key Financial Summary 4 Year CAGR 2 Year CAGR | Bn FY19 FY20 FY21 FY22E FY23E (FY17-21) (FY21-23E) NII 883 981 1107 10% 1217 1361 11% PPP 539 681 716 5% 765 856 9% PAT 9 145 204 - 272 319 25% ABV (|) 174.0 203.2 243.3 262.4 292.2 P/E 485 28 20 15 13 P/ABV 2.6 2.2 1.9 1.7 1.6 RoA 0.0 0.4 0.5 0.6 0.6
s
RoE 0.5 6.4 8.4 10.2 10.8
Source: Company, ICICI Direct Research Result Update | State Bank of India ICICI Direct Research
Key takeaways of recent quarter & conference call highlights Q1FY22 Results: Stress accretion in line with industry Fresh slippages at | 15666 crore vs. | 21934 crore, slippage ratio at 2.47%. Contribution to slippages mainly came in from retail (| 5268 crore) and SME segment (| 6416 crore). July has seen meaningful pullback of slippages Amid lockdown, loan growth came in at 5.8% YoY to | 25.24 lakh crore. Retail (personal) advances growth continued to remain strong at 16.4% YoY while SME advances remained muted at 2% YoY and corporate book de-grew 2.3% Deposits grew 8.8% YoY and de-grew 1% QoQ to | 37.2 lakh crore; boosted by savings & current deposit. Saving deposits grew 10.6% YoY. CASA ratio declined marginally from 46.13% in Q4FY21 to 45.97% in Q1FY22 NII had subdued growth owing to muted margin, which, in turn, got impacted due to lower credit deposit ratio Provision buffer increased from | 25376 crore to | 29816 crore
Q1FY22 Earnings Conference Call highlights Seeing good opportunities in UK, US and Hong Kong for international book Total loan growth expected at ~9% for FY22E Total 25% growth expected in Xpress credit wherein yields are ~11% and slippages are at ~70 bps Strong recovery at | 4790 crore in July 2021 Collection efficiency for July was at ~93.5% vs. ~92% in June Total restructured book at | 20297 crore, of which | 9000 crore is from retail and | 3000 crore from SME Interest income reversal at ~| 800 crore
ECLGS outstanding at | 22000 crore
Peer comparison
Exhibit 1: ICICI Direct coverage universe (BFSI) CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company (|) TP(|) Rating (| Bn) FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E BoB (BANBAR) 83 100 Buy 408 1.6 9.5 14.1 51.8 8.7 5.9 0.8 0.7 0.6 0.1 0.4 0.6 1.1 6.2 8.6 SBI (STABAN) 457 540 Buy 4078 22.9 30.5 35.8 20 15.0 12.8 1.9 1.7 1.6 0.5 0.6 0.6 8.4 10.2 10.8 Indian Bank (INDIBA) 140 180 Buy 158 26.6 32.9 46.7 5.3 4.3 3.0 0.7 0.7 0.6 0.6 0.6 0.8 9.9 10.4 13.5 Axis Bank (AXIBAN) 756 900 Buy 2318 25.2 47.7 58.7 30.0 15.9 12.9 2.7 2.3 1.9 0.8 1.3 1.4 8.1 13.8 15.2 City Union (CITUNI) 154 200 Buy 114 8.4 10.0 12.0 18.4 15.3 12.8 2.3 2.0 1.7 1.2 1.3 1.4 11.2 11.9 12.6 DCB Bank (DCB) 103 110 Buy 32 10.8 12.3 15.6 9.5 8.4 6.6 1.1 0.9 0.8 0.9 0.9 1.1 10.2 10.5 11.8 Federal Bank (FEDBAN) 87 100 Buy 174 8.0 9.5 12.0 11.0 9.2 7.2 1.2 1.1 1.0 0.8 0.9 1.0 10.4 11.8 13.4 HDFC Bank (HDFBAN) 1,434 1,800 Buy 7928 56.4 66.4 77.8 25.4 21.6 18.4 4.0 3.6 3.2 1.9 1.9 2.0 16.6 17.0 17.9 IndusInd Bank (INDBA) 975 1,150 Buy 755 36.7 65.1 78.6 26.6 15.0 12.4 1.8 1.6 1.4 0.8 1.3 1.4 7.3 10.8 11.6 Kotak Bank (KOTMAH) 1,740 2,040 Buy 3451 35.1 43.2 51.4 49.5 40.3 33.9 5.6 5.0 4.3 1.8 1.9 2.0 12.4 12.0 13.1 CSB Bank (CSBBAN) 352 380 Buy 61 12.6 18.3 25.5 27.9 19.2 13.8 3.3 2.9 2.4 0.1 1.0 1.2 10.5 13.6 16.4 Bandhan (BANBAN) 298 330 Hold 480 14.7 24.7 31.4 20.2 12.0 9.5 3.4 2.7 2.1 2.3 3.2 3.3 15.0 21.9 22.2 IDFC First (IDFBAN) 51 60 Buy 318 0.8 0.6 2.9 64.3 86.8 17.6 1.6 1.3 1.2 0.3 0.2 0.9 2.7 1.8 7.3
Source: Company, ICICI Direct Research
SBI is amongst better managed PSU banks with multiple levers present to drive improvement in operational performance.
ICICI Securities | Retail Research 2 Result Update | State Bank of India ICICI Direct Research
Exhibit 2: Variance Analysis Q1FY22 Q1FY22E Q1FY21 YoY (%) Q4FY21 QoQ (%) Comments Subdued growth owing to flat business growth and limited NII 27,638 27,606 26,642 3.7 27,067 2.1 margin expansion
NIM (%) 2.9 2.7 3.0 -9 bps 2.9 2 bps NIMs improve marginally as stress accertion limits expansion
Other Income 11,803 9,900 9,497 24.3 16,225 -27.3 Lower QoQ due to fall in fee income and lower recoveries
Net Total Income 39,441 37,506 36,139 9.1 43,292 -8.9
Opex decline as business activity was restricted due to Operating expense 20,466 21,804 18,078 13.2 23,592 -13.2 lockdowns PPP 18,975 15,702 18,061 5.1 19,700 -3.7 Provision 10,052 8,200 12,501 -19.6 11,051 -9.0 Elevated provisions due to rise in stress PBT 8,923 7,502 5,560 60.5 8,649 3.2 Tax Outgo 2,419 1,913 1,370 76.6 2,198 10.0 PAT 6,504 5,589 4,190 55.2 6,451 0.8
Key Metrics GNPA 1,34,259 1,31,886 1,29,661 3.5 1,26,389 6.2 Slippages remain high resulting GNPA rise QoQ NNPA 43,153 38,010 42,704 1.1 36,810 17.2 Advances 2431908 2425003 2298346 5.8 2449497.79 -0.7 Loan growth flattish sequentially due to lockdowns imposed Deposits 3720987 3795493 3419363 8.8 3681277.08 1.1
Source: Company, ICICI Direct Research
Exhibit 3: Change in Estimates FY22E FY23E | crore Old New Change (%) Old New Change (%) Net Interest Income 136519 121708 -10.8 149003.8 136067 -8.7 Pre Provisions Profit 89982 76533 -14.9 97285.1 85551 -12.1 NIM (%) 3.2 2.8 -35 3.2 2.9 -28 PAT 37154 27224 -26.7 40491.2 31903 -21.2 ABV per share (|) 283 262 -7.2 324.5 292 -10.0
Source: Company, ICICI Direct Research
Exhibit 4: Change in Assumption
Current Earlier
FY22E FY23E FY22E FY23E Credit growth (%) 9.7 10.0 9.7 10.0 Deposit Growth (%) 9.4 9.4 9.4 9.4 Cost to income ratio (%) 54.8 54.6 51.2 51.7 GNPA ratio (%) 4.8 4.4 4.1 3.5
NNPA ratio (%) 1.7 1.7 1.4 1.3
Source: Company, ICICI Direct Research
Exhibit 5: SOTP Valuation FY23E / Share SBI (merged banks) 362 SBI AMC 39 SBI Life 78 SBI cards 80 SBI General Insurance 13 Value per share 571 Holding company discount for subsidiaries @15% 31 Value per share post discount 540
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 3 Result Update | State Bank of India ICICI Direct Research
Financial summary
Exhibit 6: Profit and loss statement | Bn Exhibit 7: Key Ratios (Year-end March) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Interest Earned 2,429 2,573 2,652 2,947 3,272 Valuation Interest Expended 1,545 1,592 1,544 1,730 1,911 No. of Equity Shares (Crore) 892.0 892.0 892.0 892.0 892.0 Net Interest Income 883 981 1,107 1,217 1,361 EPS (|) 1.0 16.2 22.9 30.5 35.8 % growth 18.0 11.0 12.9 9.9 11.8 BV (|) 247.9 261.3 284.6 313.1 346.9 Non Interest Income 352 452 435 477 523 ABV (|) 174.0 203.2 243.3 262.4 292.2 Net Income 1236 1433 1542 1694 1883 P/E 485.4 28.1 20.0 15.0 12.8 Employee cost 411 457 509 586 644 P/BV 1.8 1.7 1.6 1.5 1.3 Other operating Exp. 286 294 317 343 384 P/ABV 2.6 2.2 1.9 1.7 1.6 Operating Income 539 681 716 765 856 Yields & Margins (%) Provisions 538 431 440 400 427 Net Interest Margins (calculated) 2.9 2.8 2.9 2.8 2.9 PBT 0 251 275 365 428 Yield on avg earning assets 7.4 7.4 6.9 6.9 7.1 Exceptional Items 16 -152 105 0 0 Avg. cost on funds 4.8 4.6 4.0 4.0 4.1 Taxes 7 106 71 93 109 Avg. cost of Deposits 5.0 4.8 4.1 4.3 4.3 Net Profit 9 145 204 272 319 Yield on average advances 7.8 8.0 7.2 7.1 7.3 % growth -113 1625 41 33 17 Quality and Efficiency (%) Cost / Total net income 55.7 52.5 53.6 54.8 54.6 EPS 0.9 16.2 22.9 30.5 35.8
Credit/Deposit ratio 75.1 71.7 66.5 66.7 67.1 Source: Company, ICICI Direct Research GNPA 7.5 6.2 5.0 4.8 4.4 NNPA 3.0 1.9 1.5 1.7 1.7 RoE 0.5 6.4 8.4 10.2 10.8 ROA 0.0 0.4 0.5 0.6 0.6
Source: Company, ICICI Direct Research
Exhibit 8: Balance sheet | Bn Exhibit 9: Key ratios (%) (Year-end March) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Sources of Funds Total assets 6.6 7.4 14.7 9.0 9.1 Capital 8.9 8.9 8.9 8.9 8.9 Advances 13.0 6.4 5.3 9.7 10.0 Reserves and Surplus 2200 2322 2530 2784 3085 Deposits 7.6 11.3 13.6 9.4 9.4 Networth 2209 2331 2539 2793 3094 Total Income 5.5 8.2 2.0 10.9 10.8 Deposits 29114 32416 36813 40283 44083 Net interest income 18.0 11.0 12.9 9.9 11.8 Borrowings 4030 3147 4173 4398 4646 Operating expenses 1.6 0.8 1.0 1.2 1.1 Other Liabilities & Provisions 1456 1631 1820 1957 2111 Operating profit -6.8 22.9 5.0 7.0 11.8 Total 36809 39525 45344 49432 53934 Net profit -112.9 1626.0 40.8 33.4 17.2 Book value 0.9 5.4 8.9 10.0 10.8 EPS (112.9) 1,626 40.8 33.4 17.2 Application of Funds Fixed Assets 392 384 384 402 430 Source: Company, ICICI Direct Research Investments 9670 10470 13517 14122 14777 Advances 21859 23253 24495 26879 29567 Other Assets 2663 2907 3518 4245 4979 Cash with RBI & call money 2225 2511 3430 3783 4180 Total 36809 39525 45344 49432 53934
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 4 Result Update | State Bank of India ICICI Direct Research
RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
ICICI Securities | Retail Research 5 Result Update | State Bank of India ICICI Direct Research
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I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Sameer Sawant, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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ICICI Securities | Retail Research 6