State Bank Of India Q2FY2020 - Result Update: Angel Broking

For Q2FY2020, SBI Bank reported a very healthy set of numbers with PAT at Rs. 3,011cr aided by treasury gains and proceeds from 4.5% stake sale in SBI Life (Rs3,515cr). Other key positives are (a) improvement in asset quality, (b) increase in NIM, (3) continuing upward trend of PCR. Further, SBI plans to monetize its credit card business which will unlock value and help to shore up CAR.

Asset quality improved; slippages could pop up in next two quarters: During the quarter, the key monitorable was slippages of Rs. 9,126cr, which is lower than expected. GNPA/NPA ratios improved 34bps/28bps qoq to 7.2%/2.8%. The bank's total stressed portfolio (SMA book + standard accounts where the ICA has been signed - Rs. 26,134cr), declined by 16bps to 1.22% of advances. Bank has used one time gain from stake sale of SBI Life, to shore up the provision on a certain asset. Calculated PCR jumped by 900bps to 61% yoy and with Tech W/off PCR at 81.2%. Against stressed HFC (DHFL), bank took 20% provision and 100% against a stressed power asset. Recent media reported that DHFL forensic audit has found fraud, and if that is true, then SBI might have to take higher provisions. Nevertheless, asset quality is improving but the recent trend of rating downgrade could add to the slippages for 2 quarters.

Despite the asset quality improving during the quarter, bank's exposure to telecom companies, few stressed HFC and Power exposure would be key risks for fresh slippages.

Advances remained flat qoq, up 10% yoy led by retail lending; NIM improved: The bank's advances grew by 10% yoy (1% qoq) aided by healthy retail loan book growth of 19% yoy. The main driver of retail leading was express credit book, which grew by 42% yoy. Key surprise was an improvement in NIM by 34bps/21bps yoy/qoq to 3.22%. This was supported by improvement in yield on advance by 26bps/13bps yoy/qoq and reduction in cost of deposit by 8bps/5bps to 5.02%. CASA ratio remained flat qoq and increased 16bp yoy to 43.7%.

Outlook & Valuation: At the current market price, the bank's core banking business (after adjusting the value of subsidiaries) is trading at 0.8x FY2021E ABV. We believe the strength of liability franchise (CASA - 43.7%), healthy improvement in performance of the subsidiaries (AMC, Life & General Insurance and Credit card business), steady improvement in stressed loan and going forward quick resolution under IBC would be the key triggers for expansion. We recommend a Buy on the stock with a Target Price of Rs. 371.

Shares of STATE BANK OF INDIA was last trading in BSE at Rs.312.25 as compared to the previous close of Rs. 289.95. The total number of shares traded during the day was 6166973 in over 41042 trades.

The stock hit an intraday high of Rs. 318 and intraday low of 292.6. The net turnover during the day was Rs. 1901865855.

Source : Equity Bulls

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