SBI has healthy growth prospects and consistent asset quality. Buy for target price of Rs 729 (28% upside): Bob Caps

Strong Q1: SBIN’s Q1FY24 NII increased 25% YoY to Rs 389bn while other income surged five-fold to Rs 120.6bn, backed by treasury gains of Rs 38.5bn vs. a loss of Rs 65.5bn in the year-ago quarter. Despite strong non-core income, NIM slipped 18bps QoQ to 3.1% as deposit repricing led to a higher cost of funds, offsetting an increased yield on assets. PPOP rose 98% YoY and PAT jumped 178% to Rs 169bn supported by the recovery in other income, reduction in opex and lower provisions at Rs 25bn vs. Rs 44bn in Q1FY23, despite an increase in slippages.

Healthy business growth: Advances climbed 15% YoY, marking broad-based growth for SBIN barring overseas operations. Deposits grew 12% YoY, bettering the sub-10% run-rate of the last 3-4 quarters. Excess SLR of Rs 4tn alongside recovery in deposit mobilisation is likely to support business growth. Management is confident of achieving credit growth of 15% YoY in FY24, though we pencil in 13% growth as a conservative measure.

Steady asset quality with lower credit cost: Despite higher slippages due to seasonality, asset quality remained stable with GNPA/NNPA at 2.76%/0.71% vs. 2.78%/0.67% in Q4FY23. PCR stood at 75% vs. 76%. SBIN’s restructured book reduced to Rs 227bn (vs. Rs 243bn in Q4FY23), forming 0.7% of loans, whereas the SMA-1&2 book spiked to Rs 72.2bn (vs. Rs 32.6bn). However, a non-NPA provision of Rs 35bn (152% of NPA) provides a cushion against any sudden rise in stress. Credit cost declined 11bps QoQ to 31bps in Q1.

Maintain BUY, TP Rs 729: Healthy business growth together with recovery in noncore income is likely to boost the topline even as cost control measures along with stable asset quality should support the bottomline. We expect the bank to maintain NIM at 3% with ROA/ROE at 1%/16% in both FY24-FY25. Further, with no immediate equity dilution on the cards, we see further profit potential and model for a 12% CAGR in PAT over FY23-FY25. Given healthy growth prospects and consistent asset quality, we maintain BUY for an unchanged TP of Rs 729, based on 1.3x FY25E ABV (Gordon Growth Model) and adding in Rs 166/sh for subsidiaries.