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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