BSE SENSEX
43,594
S&P CNX
12,749
State Bank of India
Buy
Asset quality steady; PPoP->PAT conversion set to improve
Retail trends in line with top players; Valuations compelling
11 November 2020
Company Update | Sector: Financials
CMP: INR234
TP: INR300 (+28%)
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
SBIN IN
8,925
2090.1 / 27.8
351 / 150
11/3/-34
13400
43.1
Financials Snapshot (INR b)
Y/E March
FY20 FY21E FY22E
NII
980.8 1,117.8 1,232.8
OP
681.3 749.8 815.9
NP
144.9 216.5 302.3
NIM (%)
3.0
3.1
3.0
EPS (INR)
16.2
24.3
33.9
EPS Gr. (%)
NM
49.4
39.7
ABV (INR)
186.7 215.9 242.5
Cons. BV (INR)
266.7 294.6 332.9
Ratios
RoE (%)
7.2
9.9
12.4
RoA (%)
0.4
0.5
0.7
Valuations
P/BV (x) (Cons.)
0.9
0.8
0.7
P/ABV (x)
0.6
0.5
0.4
P/E (x)
6.4
4.3
3.1
*Price adjusted for value of subs
SBIN appears well positioned to report strong uptick in earnings as the uncertainty
brought about by the pandemic has receded significantly. While collection trends
have improved to ~97%, restructuring of up to 1% of loans is expected. Further,
legacy issues in the corporate NPA cycle is now largely behind. SBIN carries healthy
PCR of ~88% on corporate NPA. We expect credit costs to normalize from FY22E.
SBIN’s focus has been on building a granular and high-quality portfolio. With retail
growth back to pre-COVID levels and improving trends in Home loans, Auto loans,
Gold loans, etc. we expect gradual deployment of excess liquidity toward
incremental retail demand. Also, improvement in cost of funds is likely to drive
margins, and thus, enable strong NII growth.
We estimate SBIN’s PPoP at 11% CAGR over FY20-23E (v/s 7% CAGR over FY15-20).
Therefore, overall PPoP to provisions should strengthen to 2.4x by FY23E (v/s avg.
1.1x over FY17-20). Our PAT estimate stands at INR302b/INR393b for FY22/23E.
The current valuations are compelling with the core bank trading at 0.4x FY22E ABV
(1.3x FY22E P/Core PPoP and 3.1x FY22E P/E). RoEs should recover to ~14% by
FY23E. We expect rerating in the stock as long awaited earnings normalization cycle
has begun. Reiterate Buy with TP of INR300.
Earnings normalization begins; PPoP conversion to PAT set to improve
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-20 Jun-20 Sep-19
34.7
34.7
34.7
25.1
27.3
25.4
19.9
18.8
21.4
20.4
19.3
18.5
FII Includes depository receipts
Stock Performance (1-year)
St Bk of India
Sensex - Rebased
365
305
245
185
125
SBIN appears well positioned to report strong uptick in earnings. The NPL
formation has moderated significantly while strong pipeline of accounts under
recovery should enable further improvement in asset quality. SBIN has
improved its PCR sharply (similar to large private peers). It has a PCR of ~88%
on the corporate book, which should enable normalization in credit cost from
FY22. This, along with an expected uptick in core operating performance will
further propel earnings growth, in our opinion.
We, thus, estimate SBIN’s PPoP at 11% CAGR over FY20-23E (v/s 7% CAGR
over FY15-20), aided by improvement in cost of funds and market share gains.
Overall PPoP to provision coverage should strengthen to 2.4x by FY23E (v/s
average of 1.1x over FY17-20). We expect PAT of INR302b/INR393b for
FY22/23E.
Franchise continues to gain systemic market share
SBIN continues to witness market share gains, both in loans and deposits.
Unlike other PSBs that have lost market share, SBIN’s loan share has improved
to 22.4% (v/s 19% in FY15). Also, deposit market share has increased to ~24%
(v/s 21.6% in FY15). We also note that market cap to deposits/loans (adjusted
for subs) has declined sharply to ~2.7%/4.1%, the lowest levels (including the
GFC period). The core bank trades at 1.3x FY22E P/Core PPoP and 3.1x FY22E
P/E, providing an attractive risk reward opportunity. The pickup in earnings
should enable a rerating in the stock.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com) |
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com)
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);
Yash Agarwal
(Yash.Agarwal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.