Buy State Bank of India; target of Rs 600: Motilal Oswal
Motilal Oswal is bullish on State Bank of India recommended buy rating on the stock with a target price of Rs 600 in its research report dated August 20, 2021.
Broker Research
August 23, 2021 / 11:49 AM IST
Motilal Oswal's research report on State Bank of India
SBIN has demonstrated a strong improvement in asset quality, with GNPAs declining by 43% over the past three years, while PCR increased to 68% currently from 40% four years back. Fresh slippages moderated sharply to 1.2% in FY21 (2.5% in 1QFY22), lower v/s many of its private peers. AUCA book stood at INR1.72t - higher than the GNPL pool, with recoveries in the 6-11% range. Over the past five years, the bank has recovered ~INR400b from the AUCA book. We expect the recovery trends to continue as the IBC process gains pace after a long pause due to the COVID-19 restrictions. SBIN appears well positioned to report strong uptick in earnings, led by moderation in credit cost from FY22. The bank has historically delivered over 15% RoE for 10 years, before the worst phase of the corporate cycle hit earnings to the point that it reported back-to-back losses in FY17/FY18. During FY19-21, SBIN has shown a remarkable improvement in asset quality, reducing net NPLs to 1.8% at present from 5.7% in FY18, while PCR stands comparable to many well-run Private Banks.
Outlook
We estimate 14% CAGR in PPOP over FY21-23E (v/s 6% CAGR over FY18-21). Overall PPOP to provision coverage should strengthen to 2.5x by FY23E (v/s an average of 1.3x over FY18-21), while RoE expands sharply to ~15% and reach their decadal highs in FY23E. SBIN remains among our top Buys in the Banking space with a TP of INR600 (1.4x FY23E ABV+INR190 from subsidiaries/JVs).
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Read More
