One-off aid RoA; core performance remains healthy
About the stock: SBI is a public sector bank and also the largest bank in India with a balance sheet size of over ~ ₹62 lakh crore.
• SBI has showcased strength in retail portfolios, best operating metrics in the PSU banking space. Large subsidiaries, strong outlook adds value.
Q4FY24 performance: State Bank of India reported healthy earnings at ₹20698 crore, up ~24% YoY, led by higher other income and lower provision during the quarter. Operational performance remained steady with NII growth at 3.1% YoY, led by ~16% YoY growth in advances. Margins witnessed a sequential uptick of 8 bps at 3.3% (domestic NIM up 13 bps at 3.47%). Strong other income (up 24.4% YoY) backed by treasury gains and miscellaneous income aided operating profit. Post wage revision in Q3FY24, Opex normalized in Q4FY24, while credit cost remained lower at 17 bps (annualized). Liabilities accretion remained healthy at 11.1% YoY, primarily led by term deposits. Asset quality continued to improve with slippages at 62 bps and 18 bps QoQ decline in GNPA at 2.24%.
Investment Rationale
• In-line industry credit growth to aid performance: Loan growth remained healthy at 15% YoY, driven by across segment – retail (15%), SME (21%), though corporate segment witnessed higher growth at 11% QoQ. Healthy pipeline of corporate sanctions and continued focus on retail segment is expected to keep credit growth broadly in-line with the industry. Management expects advance growth at 13-15% CAGR in FY25-26E.
• Steady margins amid increase in CD ratio & efficiency improvement to aid RoA ahead: Margins inched up 8 bps QoQ in Q4FY24 at 3.3%, aided by increase in CD ratio & IT refund of ₹1340 crore. Healthy liabilities franchise with repricing largely done and scope to increase CD ratio further is expected to keep margin steady while normalization in opex coupled with benign credit cost at ~0.4-0.6% is seen to drive earnings and keep RoA at ~1%. Treasury gains (with anticipation of reversal in interest rates) and any substantial recovery from stressed pool could act as a positive surprise.
• Asset quality to remain prudent: Asset quality continued to remain resilient with slippages at 0.4% and PCR at ~75%. Expect slippages to remain steady with credit cost inching towards ~40 bps in FY25-26E supporting earnings trajectory ahead.
Rating and Target Price
• SBI has demonstrated its strength in the last few quarters both on core operating performance and asset quality. Management remains confident on growth, maintenance of margins and improvement in RoA. Sustained balance sheet growth (13-15%), strong liabilities franchise and prudent asset quality is expected to aid RoA at ~1% in FY25-26E. Gains on treasury and recovery from existing stressed book to act as catalyst. Valuing the bank at ~1.6x FY26E BV and subsidiaries at ~₹184/share, we revise our target price at ₹1000 (from ₹800). Maintain Buy.
Leave a Reply