Emkay Global Financial's report on State Bank of India
SBI continued to report a strong PAT of Rs91bn (est.: Rs86bn), up 41% yoy, led by better credit growth/margins, forex fees and contained LLP. However, the bank took a hit on investments (Rs20.6bn) mainly on security receipts, while core banking fees were slightly lower. It expects fee growth to improve in FY23, led by business pick-up and lower fee waivers, while contained opex will partly cushion the impact of rising G-sec yields on the treasury. SBI delivered system-beating credit growth at 11% yoy in FY22, mainly led by strong traction in retail (mortgages/xpress credit), SME and corporate/overseas growth. It expects credit growth momentum to continue in FY23, with retail doing the heavy-lifting and supported by SME/corporate growth. It believes that better LDR and a higher share of the floating-rate loan portfolio (MCLR - 41%, Repo - 23%, T-Bill - 11%) should support its strong margin trajectory. SBI's GNPA/NNPA ratios have been steadily falling since FY18, hitting a low of 4%/1.3% in Q4 due to lower net slippages. The restructured pool was lower at 1.4% of loans. Lower NPA formation and healthy PCR on stock of NPAs should contain incremental LLP. Factoring in better growth, margins and LLP, we expect the bank to report a decadal-high RoE of ~15-17% over FY23-25E, without factoring in any equity dilution.
Outlook
SBI has come a long way and is now far better placed in terms of delivering sustained profitable growth, but it still trades at cheap valuations. It is reasonably capitalized and can shore up capital buffers by tapping capital market/unwinding value in subsidiaries. Retain Buy/OW in EAP with a revised TP of Rs640 v/s Rs680, valuing the core bank now at 1.3x v/s 1.5x FY24E ABV due to higher CoE and subs/investments at Rs207. SBI remains one of our preferred large-cap stocks after ICICI.
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