SBI - Target Price of Rs. 2592 - Dolat Capital

We believe that SBI should be one of the biggest beneficiary of an uptick in the economic growth as concerns regarding the asset quality start to abate. Valuations have come-off by around 20% over the past couple of quarters and look attractive, given the interest rate cycle reversal and possibility of improvement in GDP growth going forward.

- The bank was witnessing extremely high delinquency ratio which has started to trend downwards. The total impaired loans for SBI is also one of the lowest amongst peers.

- The stress in large corporate clients is now coming down though the SME clients are still facing stress and remains a key threat to asset quality.

- Even excluding the accounts which were restructured and thus got upgraded in the NPL pool, the NPL recoveries and upgrades saw a noticeable improvement. We believe that the asset quality should largely be maintained as corporate delinquencies (both large and mid corporates combined) are expected to reduce albeit moderately going forward and retail NPL remain stable.

- Going forward the bank would continue to grow its total assets at around 20% with focus on large corporate accounts and mid corporate accounts with better risk profile.

- We believe that as fresh NPL formations trend down and recoveries improves, credit cost should see a meaningful decline over the next two years. PBR valuation of 0.9x on FY14 BVPS, adjusting for investments is attractive in our view. We have a Buy rating on the stock with SOTP based target price of Rs. 2592.

Source : Equity Bulls

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