Maintain BUY on State Bank of India - Elephant begins to groove - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

State Bank of India (SBIN) 4QFY21 earnings were in line with our estimates with higher overheads offset by lower provisions. However, the headline positive surprise came on the asset quality front, with full-year slippages at a multi-year low at 1.2% (even better than the leading private banks) and a restructured portfolio (0.7%) well within management guidance. With the back-book sufficiently provided for (PCR at 71%) and surplus provisions at ~1% of loans, we expect normalisation in credit costs despite potential disruptions from the second wave of the pandemic. On balance, with ROAs currently at 0.5%, we believe SBIN remains a 1% potential ROA franchise - this reflation is largely contingent on stronger deployment opportunities and further exercising of pricing power. We revise our FY22/FY23E earnings estimates upwards by 12.8%/3.3% on the back reflating NIMs and improving fee traction. Maintain BUY with revised SOTP-based TP of INR490 from INR462 (standalone bank at INR333, 1.1x Mar'23 ABV).

In-line P&L performance: SBIN reported steady P&L performance with NII/PPOP growth of 4%/7% YoY and steady NIM at 3%. Loan growth across segments picked up sequentially (3.4%) except for the SME segment. Deposit traction remained strong (14% YoY) with CASA ratio at 45%.

Adjusted slippages at multi-year low; expected to sustain at 2%: SBIN's FY21 adjusted slippages clocked in at 1.9% (1.2% slippages + 0.7% restructuring), a 15-year low and they are likely to hover around these levels during FY22-FY23E. With the corporate back-book largely pruned (SMA1+2 at ~47bps), incremental high slippages are likely to emerge from the SME and agri portfolios, while retail asset quality remains pristine (largely secured book). We build in slippages at 2% and provisions of 1.6% during FY22-FY23E.

1% ROA contingent on deployment and yield reflation; maintain BUY: On balance, with ROAs currently at 0.5%, we believe SBIN remains a 1% potential ROA franchise. With funding cost tailwinds already in the base, the journey to 1% ROA on a sustainable basis is contingent on stronger deployment opportunities (Mar'21 C/D ratio at 67%) and further exercising of pricing power.

Shares of STATE BANK OF INDIA was last trading in BSE at Rs.412.05 as compared to the previous close of Rs. 401.1. The total number of shares traded during the day was 6879567 in over 72462 trades.

The stock hit an intraday high of Rs. 418.9 and intraday low of 405.3. The net turnover during the day was Rs. 2832490381.

Source : Equity Bulls

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