Reiterate BUY on State Bank of India - Get on the dance floor - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

SBIN's 3Q earnings were significantly ahead of our estimates on the back of (1) better-than-expected margins and (2) lower-than-expected provisions. The biggest surprise, however, was SBIN's performance on asset quality metrics with pro forma slippages (94bps annualised) and restructuring requests (0.8% of loans) coming in well within management guidance. With the back-book sufficiently provisioned against (pro forma PCR at 67%) and potential build- up in stress in line with the best-in-class private sector banks (evidence of comparable quality of underwriting in retail and SME), we see potential for a meaningful narrowing of SBIN's valuation discount to its private bank peers. We continue to be conservative on accretion to stress (possible lagged impact) and loan loss provisions (on both pools of potential stress). We raise FY21-23 earnings by 12-27% and reiterate BUY with a revised target price of INR455.

Asset quality surprises positively: Over 9MFY21, SBIN witnessed pro forma slippages of just ~INR165bn (94bps annualised, net of recoveries and upgrades), of which the share of the agri segment was ~50%, implying very low incremental stress accretion across corporate, retail and SME credit. Consequently, pro forma GNPLs dipped 44bps QoQ to ~5.4% while the stock of restructuring proposals at INR181bn (0.8% of loans) was also well within the guided range of ~1%. While the management retained its FY21E stressed asset addition guidance at ~INR600bn, we conservatively build in slippages of INR619bn (2.6% annualised) in FY21E.

Provisioning below estimates: Non-tax provisions at INR103bn were 24% below our estimates. SBIN provided ~INR21bn against pro forma slippages, pushing the derived pro forma PCR up 213bps sequentially to 67%. SBIN incrementally provided INR30bn towards contingencies during the quarter, taking the total stock of COVID-19 related provisions to ~INR60bn (25bps of loans). Further, SBIN held ~INR15bn against restructured assets (~8% of restructuring requests). We reduce our FY21E credit cost estimates to ~1.8%, from ~1.9% earlier and we build ~1.6% over FY22-23E.

Shares of STATE BANK OF INDIA was last trading in BSE at Rs.393.05 as compared to the previous close of Rs. 355.1. The total number of shares traded during the day was 10611010 in over 97876 trades.

The stock hit an intraday high of Rs. 408.35 and intraday low of 385.2. The net turnover during the day was Rs. 4226621612.

Source : Equity Bulls

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