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SBI has once again delivered a strong earnings beat, at Rs167bn (Emkay: Rs127bn), mainly led by healthy growth, continued increase in margin/core fees, and lower provisions. Staff cost was higher owing to wage-revision provision (Rs15bn) as well as PLI incentive. Going forward, the bank expects growth to moderate to 12-14% in FY24 from 17% in FY23, but continued traction in the retail portfolio, along with MCLR repricing and LDR improvement, should support margins. Bank has not indicated any net ECL shortfall, but our workings suggest a likely shortfall of ~1% of loans under the Base stress case which, though, looks easily manageable. Bank has delivered its decadal-best RoA, of ~1%/RoE of ~18% in FY23; we expect it to deliver 1% RoA/16-18% RoE over FY24-26E, without factoring-in a capital raise. Bank claims that it is in no hurry to raise capital, given the strong internal accruals. We roll-forward our TP on FY25E ABV, valuing the standalone bank at 1.3x now vs 1.4x Dec-24E ABV which, coupled with subsidiaries’/investment value of Rs180/sh (vs Rs206 earlier), leads to TP of Rs700/share (vs Rs715 earlier). We retain BUY.

Growth set to moderate, but expect margins to uphold

SBI continued to outpace the systemic (15%) credit growth at 17%/5% QoQ, mainly led by higher retail/SME growth and return of corporate growth. Within retail, Xpress credit continues to report strong traction – up 26% YoY – and now contributes 9% of loans. Deposit growth remains relatively moderate at 9% YoY, while LDR continues to be low, at 72%. Amid margin pressure seen for most PSBs (barring BOB) and even PVBs (barring ICICIB/Kotak Mahindra Bank), SBI continued to clock margin improvement, of 10bps QoQ to 3.6%, aided by asset re-pricing/interest on IT refund and relatively-lower rise in deposit cost. Going forward, Bank expects growth to moderate to 12-14% due to macro slowdown in FY24, but continued traction in retail, pending MCLR repricing (50% of the 42% book) and LDR improvement should support its margins.

NPAs trending down, while Bank carries adequate provision buffers

Gross slippages remain contained at Rs35bn/0.5% of loans, leading to steady decline in both, GNPA ratio to 2.8% and NNPA ratio to a low 0.7%. The restructured pool too moderated, to Rs243bn/0.8% of loans vs 0.9% in Q3. Further, the bank has made ad hoc standard asset provisions of Rs26bn on the large corporate exposure not under stress, but carries systemically-higher exposure. Bank has not pointed to any net ECL shortfall, but our workings suggest such shortfall could be ~1% of loans under the Base stress case which seems manageable.

Outlook and valuations

Despite slower growth, we raise our earnings estimates for FY24, factoring-in the higher treasury gains and lower LLP. Bank has delivered its decadal-best RoA, of 1%, and RoE of 18% in FY23; we expect it to deliver 1% RoA and 16-18% RoE over FY24-26E, without building-in any capital raise. We roll-forward our TP on FY25E ABV, valuing the standalone bank at 1.3x now vs 1.4x Dec-23E ABV, factoring-in the lower growth which, coupled with subsidiaries’/investment value of Rs180/share (vs Rs206 earlier), leads to a TP of Rs700/share (vs Rs715 earlier). We retain BUY on SBI.

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