Maintain BUY on SBI - For valuations, and little else - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities.

SBI (4QFY20): For valuations, and little else. Maintain BUY
(TP Rs 270, CMP Rs 188, MCap Rs 1,676 bn)

SBIN's 4Q core and net earnings were below estimates. Asset quality improved, even if one adjusts for the standstill classification impact, but this improvement was aided by higher w/os. The moratorium % is unusually low (vs. peers) and the related disclosures were ambiguous. Further, COVID-19 related provisions (Rs 9.4bn) appear low, in context of those made by peers as well as SBIN's asset quality track record. Consequently, we've reduced our earnings to factor in higher provisions (driven by higher anticipated stress). The term of SBIN's current chairman is set to end in Oct-20, this creates additional uncertainty. However, current valuations and a strong deposit franchise underpin our stance. Maintain BUY with an SoTP value of Rs 270 (0.75xFY22E ABV + Rs 113 subs value).

Asset quality improves: GNPAs dipped 13.7/6.6% YoY/QoQ, to ~Rs 1.49tn (6.15%), aided by a 58.7% QoQ fall in slippages (1.47% ann.) and higher w/os (+91.7% QoQ). The standstill classification of a/cs (~Rs 62.5bn) had a 30/110bps cushioning impact on GNPAs and slippages. SMA I & II dipped 6.4/10.3%, and were unusually low at just 31bps. Despite the low moratorium %, we think COVID-19 will disrupt the current trend of asset quality improvement. We have factored in slippages of 3.3% over FY21-22E.

Funding and liquidity: SBIN's deposit base grew ~Rs 1.3tn QoQ (+4.2%, vs. ~Rs 808bn in 4QFY19), an indicator of increasing polarisation in systemic deposits, we believe. Liquidity is not a worry for the bank, with avg. LCR at 134.4%. SBIN on is one of the best-placed banks on the deposit and liquidity fronts. However, on the capital front, SBIN lags, with a CET-1 of ~9.8%. The mgt explicitly said that it doesn't intend to raise capital in the near term and that it would rely on earnings and stake sale gains to augment CRAR. An equity raise at current valuations would be immensely book-dilutive.

Management commentary related to COVID-19: (1) The mgt indicated that (a) 82% of SBIN's borrowers (by number) paid two or more installments, (b) 21% of retail term borrowers, (c) ~47% of SME term borrowers (d) ~13% of corporate term borrowers, (e) ~20% of w/c borrowers availed of the moratorium and that (f) ~18% of its NBFC portfolio was under moratorium. (2) The mgt said that ~Rs 1.5tn of loans were eligible for further lending under the NCGTC scheme, implying ~Rs 300bn of additional credit under the scheme, and that the bank intended to lend to all eligible borrowers, sans further assessment. (3) Standstill classification cases were mostly part of the retail, SME and agri portfolios. (4) SBIN intends to lend ~Rs 30bn under TLTRO 2.0 and received proposals of ~Rs 150-180bn in Apr & May from NBFC/HFCs but sanctioned only 20% of such proposals.

Shares of STATE BANK OF INDIA was last trading in BSE at Rs.187.8 as compared to the previous close of Rs. 174.05. The total number of shares traded during the day was 10714152 in over 58593 trades.

The stock hit an intraday high of Rs. 189.8 and intraday low of 176. The net turnover during the day was Rs. 1949687427.

Source : Equity Bulls

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