Buy State Bank of India Ltd For Target Rs.700 - ICICI Direct
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Highest ever quarterly profit, ripe for re-rating…
About the stock: SBI is a public sector bank and also the largest bank in India with a balance sheet size of over ~ | 52 lakh crore.
* Strength in retail portfolios, best operating metrics in the PSU banking space
* Large subsidiaries, strong outlook adding value to the bank
Q2FY23 Results: SBI delivered highest ever quarterly PAT.
* GNPA, NNPA improved 39 bps, 20 bps QoQ, respectively; slippage ratio at 0.33%
* NII up 12.8% YoY, NIMs improved QoQ by 30 bps
* Other income jumped meaningfully QoQ as Q1FY23 was impacted by treasury losses. Provision down 30.1% QoQ, 60.0% YoY. PAT up 73.9% YoY at | 13263 crore
* Gross advances up 20.8% YoY, deposits up 10% YoY; CASA at 44.63%
What should investors do? SBI’s share price has surged over 2x in the past five years. We believe SBI with its humongous size has reported consistently upbeat performance with this quarter seeing above par growth in earnings and return ratios. The stock, long due for re-rating, should see a strong positive reaction.
* Hence, we retain our BUY rating on the stock
Target Price & Valuation: We value the bank at ~1.3x FY24E ABV and subsidiaries at ~| 192/share to arrive at a revised target price of | 700 from | 650 earlier.
Key triggers for future price performance:
* Credit growth guidance of ~14-16% to be driven by steady margins, healthy deposit franchise and strong demand pipeline, which will also aid business growth and overall performance
* Steady NIMs with adequate provision buffer to aid healthy earning momentum ahead
* Thus, improving RoE trajectory to aid improvement in valuations
* Continued traction in customer & business accretion via “Yono”. Unlocking of subsidiaries value to act as positive surprise
Alternate Stock Idea: Besides SBI, in our coverage we also like IndusInd Bank.
* Robust business growth, uptick in NIM, moderation in provision seen enabling the bank to generate RoA of 1.6-1.7% in FY23-24E. This seems positive
* BUY with a target price of | 1350
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