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MTM mars overall earnings; outlook steady

About the stock: SBI is a public sector bank and also the largest bank in India with a balance sheet size of over ~ | 50 lakh crore.

? Strength in retail portfolios and best operating metrics in the PSU banking space

? Large subsidiaries, strong outlook adding value to the banks

Q1FY23 Results: MTM mars overall earnings; NPA largely steady QoQ.

* GNPA & NNPA steady at 3.9% & 1.0%; slippages marginally higher at 1.38%

* NII up 12.9% YoY, NIMs declined QoQ by 13 bps

* Provision down 56% YoY. Treasury loss of | 6550 crore impacted earnings. Due to MTM impact PPOP de grew 32.8% YoY. However, excluding MTM impact PPOP grew 14.4% YoY. PAT down 6.7% YoY at | 6068 crore

* Gross advances up 14.9% YoY and deposits up 8.7% YoY; CASA at 45.3%

What should investors do; SBI’s share price has surged over 1.8x in the past five years. We believe overall strength in lending franchise, provision buffers and healthy guidance are positives. Improving return ratios with RoE at ~12% and RoA at ~0.7- 0.8%, offers long term comfort on the stock.

* We retain our BUY rating on the stock

Target Price & Valuation: We value the bank at ~1.2x FY24E ABV and subsidiaries at ~| 192/share to arrive at a revised target price of | 615 from | 605 earlier.

Key triggers for future price performance:

* Credit growth guidance of ~14-15% on the back of healthy demand pipeline to aid business growth and overall performance

* Gradual improvement in margin, steady operational efficiency coupled with adequate provision buffer to aid earning momentum

* 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 Axis Bank.

* Strong liabilities franchise, adequate capitalisation and healthy provision buffer to aid business growth as well as earnings trajectory

* BUY with a target price of | 970

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