FY20e EPS up 12% to factor in recovery from IBC account; valuations are attractive; ‘Buy’ retained
Results were largely in line, with core profits boosted by lumpy recoveries from NCLT. Higher tax expense was due to deferred tax asset reversal as SBIN moves to lower corporate tax rate. Margins (ex-of one time recovery) were stable at ~2.87%, loan growth driven by retail (+17.5% y-o-y). Net stressed assets stood at 3.5%, credit costs could remain volatile in near term. Still, valuations are fairly attractive at 1.1x fwd P/B. Retain Buy, PT Rs 390.
Margins boosted by higher recovery: Core PPOP (ex-treasury) grew 43.7% y-o-y (2.7% below JEFe) – recovery from IBC accounts sitting in NII & other income and improving cost ratios. Margins for the quarter stood at 3.55%, but ex. one time impact of ~Rs 40 bn of bad debt recovery, they stand at ~2.87% (down 12 bps q-o-q) due to slower growth in higher yielding retail loans. Management doesn’t expect any further material improvement in NIM.
Asset Quality: Net stress declined to 3.5% (vs 4.1% last quarter), driven by recovery from lumpy IBC accounts of Essar Steel, Ruchi Soya & Prayagraj in the quarter. Gross NPL was 6.9% (30 bps lower q-o-q) with overall provision cover (incl. Written off) inching up to 81.7%. Slippage in quarter was at Rs 200.9 bn (of which Rs 94.6 bn from corporate sector), with fresh slippage ratio of 3.93%. Dewan Housing slipped to NPL in the quarter. SBI’s overall exposure (loans & investments) to the account stands at ~Rs 100 bn, of which ~30% has been provided for (~20% on loans, 50% on bond investments).
Loan & deposit growth: Total gross loans were up 6.8% y-o-y. Total domestic loans were up 16.9%. Retail grew at strong 17.5% y-o-y. Home loans grew 15.6%, auto loans slowed down and were up 3.7%. Industry credit growth was largely flat. Deposits grew 9.9% y-o-y – term deposits growing 10.6%
y-o-y, CASA ratios stable at ~44.7%.
Estimate change & valuations: We tweak our earnings estimate for FY20 by 12%, factoring in the recovery from IBC account. Overall, we increase FY21/22 margin estimate by ~8-9 bps, but factor in slightly lower loan growth. We forecast FY19-22e adj. BV CAGR of 10.5% (standalone). We value SBIN at Rs 390, which implies consol P/B of 1.2x and 6.6x P/E on 12-month forward basis.