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Steady 4QFY22; PCR improves to 75%

Well on track to reach its 15% RoE goal

* SBIN reported a 41% YoY growth in PAT at INR91.1b, aided by steady NII growth and controlled provisions, even as OPEX stood elevated, resulting in a miss in operating performance.

* GNPA/NNPA ratio improved by 53bp/32bp QoQ to 4%/1% as slippages remained controlled, further supported by recoveries and upgrades. Restructured book remained in check at 1.1%, while the SMA pool fell 15% QoQ to INR35.4b (13bp of loans).

* We largely maintain our earnings and expect a RoA/RoE of 0.9%/16.7% in FY24. SBIN remains one of our preferred picks in the sector.

PCR improves sharply to 75%; margin stable

* SBIN reported a PAT of INR91.1b (up 41% YoY; 15% miss to MOSLe) in 4QFY22, led by a steady NII and controlled provisions. NII grew 15% YoY (inline). Domestic NIM stood flat at 3.4%.

* Other income grew 37% QoQ to INR118.8b, resulting in a total revenue of INR430.8 (inline). Core fee grew at 40% YoY, while treasury gains declined by 65% YoY to INR1.78b.

* OPEX grew 1% YoY and 12% QoQ, resulting in an increase in the C/I ratio to 54.2%. PPOP came in at INR197.2b (7% miss).

* Advances grew 11.6% YoY and at a robust 6% QoQ. Advances growth was led by 11%/5% QoQ growth in Corporate loans/Retail book. Agri book grew 3% QoQ and ~7% YoY. Corporate advances grew 11.1% QoQ and 6% YoY, aided by improved utilization levels. Xpress Credit/Home loans grew 29%/12% YoY. Deposits grew 10% YoY and 5% QoQ, with the CASA mix at 45.3% (down 46bp QoQ).

* GNPA/NNPA ratios improved by 53bp/32bp QoQ to 4%/1% as slippages remain controlled at INR36.1b. SMA pool fell to INR35.4b v/s INR41.7b in 3QFY22. The bank utilized its existing COVID-19 provisions of INR61.83b towards additional provisions against restructured assets. Restructured loans stood at INR310b (1.1% of total loans), while PCR improved by 380bp QoQ to 75% (90.2%, including TWO).

* Subsidiaries performance: SBICARD reported a PAT of INR5.8b (+230% YoY). The same for SBILIFE grew 26% YoY to INR6.7b. The AMC business reported a PAT of INR2.8b (+13% YoY). SBI General reported a PAT of INR300m v/s a loss of INR260m in 3QFY22.

Highlights from the management commentary

* The unutilized working capital limit has fallen to INR2.7t v/s INR3.1t in Dec’21. The growth in the Corporate book is led by improved demand and is likely to continue.

* Of total advances, 74% is floating in nature – 41% are linked to MCLR, 11% are linked to other EBLR, and 23% are linked to the repo rate.

* The management’s endeavor is to keep credit cost as low as possible, with a boundary of sub-1%.

* ECLGS outstanding stood at INR320b, with slippages of less than 2%.

Valuation and view

SBIN has delivered a healthy 4QFY22, led by steady NII growth and controlled provisions. Loan growth stood robust. The management expects the momentum to remain healthy as utilization levels improve, while Retail growth is likely to remain steady. A higher mix of floating loans and CASA mix will support margin in a rising interest rate environment. Asset quality performance has been strong. The outlook remains strong as the restructured book remains in control at 1.1%, while the SMA pool has declined further to 13bp of loans. We estimate credit cost to moderate to 0.9%, enabling 28% earnings CAGR over FY22-24. We expect SBIN to deliver a RoA/RoE of 0.9%/16.7% in FY24. The bank remains our conviction Buy in the sector. We revise our TP to INR600/share (1.2x FY24E ABV + INR195 from its subsidiaries).

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