SBI: Maintain ‘buy’ with a revised target price of Rs 675

SBILIFE saw its shareholder PAT decline 18% YoY to Rs 2.47billion on higher Covid-19 claims. SBI MF reported a 31% YoY PAT growth at Rs 2.59billion.

Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 66.9billion (27bp of loans).
Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 66.9billion (27bp of loans).

Restructured portfolio under tight control: SBIN reported a steady quarter, with net earnings growing 67% YoY to Rs 76.3billion (15% beat), aided by controlled provisions, as asset quality showed remarkable strength, despite the impact of the second Covid wave. It created a family pension provision of Rs 74.2billion, instead of amortizing it over five years, thus prudently deploying one-off gains from the DHFL recovery and tax refund. The bank has fully provided for its exposure toward the SREI group. GNPA/NNPA ratios improved by 42bp/25bp QoQ to 4.9%/1.5% as fresh slippage subsided to Rs 41.8billion (66bp annualized). Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 66.9billion (27bp of loans).

We expect SBIN to deliver FY23E/FY24E RoE of 14.5%/15.7%, even as we build in a credit cost of 1.1%/1%. We maintain our ‘buy’ rating, with a revised TP of Rs675 (1.4x Sep’23E ABV +210 from subsidiaries).

Earnings juggernaut in motion; asset quality ratios improve sharply: SBIN reported a 2QFY22 PAT of Rs 76.3billion (up 67% YoY; 15% beat to MOSLe), led by strong NII and controlled provisions. NII grew 11% YoY boosted by a tax refund of Rs 19.92billion. Domestic NIM improved by 35bp QoQ to 3.5%. Other income fell 4% YoY, affected by a sharp decline in treasury gains to Rs 4.29billion. Core fee grew at a modest 3% YoY. OPEX grew by 5% YoY (in line) and C/I ratio stood at 54.1% (v/s 51.9% in 1QFY22). The bank created a family pension provision of Rs 74.2billion, instead of amortizing it over five years like most PSU Banks. PPOP grew by 10% YoY (in line). Advances/deposits grew 7%/10% YoY (flat/2% QoQ). Advances growth was led by 15% YoY growth in retail advances, while corporate advances declined by 4%, impacted by lower utilization rates. Xpress Credit/Home loans grew 31%/10.7% YoY. The overseas portfolio grew at a healthy 16% YoY. CASA mix stood at 46.2% (stable QoQ). GNPA/NNPA ratios improved by 42bp/25bp QoQ to 4.9%/1.5% as fresh slippages stood at Rs 41.8billion v/s Rs 156.6billion in 1QFY22. SBIN used Rs 28.8billion of contingent provisions and has an outstanding buffer of `61.8billion. Restructured loans stood at Rs 303billion, or 1.2% of total loans (0.8% in 1QFY22), while PCR improved by 219bp QoQ to 70%. SMA pool stood at Rs 66.9billion v/s Rs 113billion in 1QFY22.

Subsidiary performance: SBICARD reported a PAT of Rs 3.45billion (67% YoY). SBILIFE saw its shareholder PAT decline 18% YoY to Rs 2.47billion on higher Covid-19 claims. SBI MF reported a 31% YoY PAT growth at Rs 2.59billion.

Valuation and view: SBIN has reported a robust performance as it bravely fought off the Covid-19 impact and displayed remarkable resilience in asset quality performance. The bank has been reporting continued traction in earnings, led by controlled provisions. However, business trends remain modest, impacted by continued deleveraging by corporates. SBI remains our conviction ‘buy’ in the sector. We are revising our TP to Rs 675 (1.4x Sep’23E ABV + Rs 210 from subsidiaries).

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