MENU

Published on 18/05/2019 10:58:56 AM | Source: HDFC Securities Ltd

Buy State Bank of India Ltd For The Target Rs.383 - HDFC Securities

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel  https://t.me/InvestmentGuruIndia 

Download Telegram App before Joining the Channel

Now Get InvestmentGuruIndia.com news on WhatsApp. Click Here To Know More

Glide path clearer

While SBIN’s profits were hit in 4QFY19 by higher provisions, best-in-class coverage was a positive outcome. A possible fund-raise will be book accretive. Maintain BUY with an SOTP of Rs 383 (1.3x Mar-21E ABV of Rs 222 + Rs 95 sub value).

 

HIGLIGHTS OF THE QUARTER

* Delinquent Loans Dip: Led by high W/Os (~Rs 173bn) and lower slippages (~Rs 80bn, 1.50%), GNPAs dipped ~8% QoQ (Rs 1.72tn, 7.5%). LLPs were ~24% higher QoQ, resulting in a massive ~19% dip in NNPAs (~3%). Calculated coverage jumped ~500bps QoQ to ~62%. SMA I & II nearly halved QoQ to ~36bps, ex-slippages, driven by the upgrade of a large power exposure. Reducing pools of identified stress should reign in near term slippages. We have factored in slippages of 1.80% over FY 19-21E. The glide path is clearer now.

* Bites The Provision Bullet: Led by a ~24% rise in LLPs (Rs 165bn), overall provisions were up ~2.7x QoQ. The bank (finally) provided for the rest of the exposure to Essar Steel. Total provisions against Essar, Bhushan and Alok were ~Rs 100bn in 4Q. The sequential jump in provisions was magnified as 3Q included MTM reversals of ~Rs 80bn. We have lowered our LLP estimates to ~1.42% over FY19-21E. Higher recoveries and upgrades may provide a positive surprise here.

* Growth Picks Up: Loan growth was marginally higher at 13/7%. Domestic advances grew ~14/6% while overseas advances were flat YoY (albeit up ~10% QoQ). The retail book grew ~19/6% to form ~28% of loans. Corporate loans witnessed an uptick, growing ~10% QoQ. Given its size and capital position, we see SBIN growing at no more than ~12% over FY19-21E.

* Near term outlook: Sharp improvement in asset quality should keep the stock in the limelight. STANCE Decline in fresh slippages and higher coverage put SBIN in better stead vs. a year ago, mostly insulating the P&L from shocks. Nevertheless, our earnings estimates are contingent upon smooth recoveries. Partial visibility on the recovery of three large NLCT a/cs (~Rs 160bn) provides some comfort. A book-accretive fund-raise can be expected in the near term. However, we have not factored it into our estimates.

 

To Read Complete Report & Disclaimer Click Here

 

For Religare Securities Ltd Disclaimer http://old.religareonline.com/research/Disclaimer/Disclaimer_RSL.html   

 

Above views are of the author and not of the website kindly read disclaimer