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State Bank of India Market Impact Note Q3FY20 For Target Rs.392 - HDFC Securities
Key highlights of the quarter:
* SBI reported 22.4% YoY growth in net interest income (NII) and non-interest income grew by 13.3% YoY in Q3FY20.
* Overall net interest margin (NIM) expanded by 51 bps YoY to 3.27% while domestic NIM grew by 62 bps YoY to 3.59% which was partially off set by 18 bps YoY fall in foreign NIM.
* Pre-provisioning profits (PPOP) grew by 44.4% YoY, due to expansion in margins and higher treasury gains.
* PAT for the quarter grew by 41.3% YoY due to better efficiency and lower provisioning.
* Deposits growth stood at 9.9% YoY and 2.6% QoQ for the quarter, with Current account and Savings account (CASA) deposits (43.1% of overall deposits) growing at ~8% YoY and term deposit growing at ~11% YoY, while the Advances grew by 7.4% YoY mainly driven by retail loan growth of ~18% YoY.
* Absolute gross non-performing assets (NPA) fell by 15% YoY, while net NPA fell by 28% YoY.
* While GNPA and NNPA ratio contracted by 177 bps YoY and 130 bps YoY to 6.94% and 2.65%, respectively, and sequentially both the ratios fell marginally by 25 bps and 14 bps, respectively.
View: SBI is witnessing steady growth in deposit, especially in CASA despite having lower interest rate compared to peer. Lower incremental provisioning for NPAs coupled with resolution of some of the cases in NCLT, which would enable write back of earlier provision would result in higher profitability in coming quarters. Moreover, monetization of subsidiary companies would be helpful for capitalization and also allows to make provision for any potential NPA. With Pan India presence, it would be one of the major beneficiaries of the expected pick up in credit growth once the overall economy starts revive. We have a Buy rating on the stock with the target of Rs.392 based on PBV multiple of 2x on FY21E core adjusted book value of Rs.179 adding Rs.34 per share value from Subsidiaries. Any revision in book value/rating would depend on changes in the NPA profile, Capital dilution and momentum in the NPA resolution process.
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