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Strong show continues

SBIN reported a robust quarter: a) healthy core PPOP growth of +19.5% YoY, b) continued loan growth momentum (+4.3% QoQ, +16% YoY) and robust asset quality (GNPLs/NNPLs/SMA1and2 at 2.78%/0.67%/0.10%). Strong operating performance was driven by 15bps QoQ expansion in domestic NIMs to 3.84%. Loan growth was well rounded across sectors and management guided for a growth of 12-14.0% going ahead. Deposit growth was lower at +9.2% YoY; SBINs liability franchise remains unparalleled which along with a strong CASA ratio (43.8%) and excess SLR of c.INR 4trn keeps management optimistic of sustaining the growth momentum without a major blip on cost of deposits front. Asset quality performance continues to be on a strong footing with controlled slippages at INR 34.6bn (0.5% vs 0.5% in 3Q) resulting in improvement in NPL ratios. Management indicated that SBIN hold non-NPL provisions of INR 356bn (1.1% of loans) which should aid SBIN in transitioning to ECL methodology devoid of any shocks. We believe delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters driving moderate credit costs will drive incremental stock returns for SBIN. We build in RoA/ RoE of 1.0%/17.3% for FY25E. We value the core banking business at 1.2x FY25E P/BV and we arrive at our revised SoTP-based target price of INR 700. Maintain BUY

* Robust operational performance: SBIN reported a strong loan growth of +16% YoY driven by growth across segments: retail and SME at +18% YoY each while corporate at +12.5% YoY. Retail loan growth was driven by Xpress credit and home loans (+23% and 14% YoY resp.). Management guided for a loan growth of 12-14.0% going ahead. Deposit growth was lower at +9.2% YoY; though management was not concerned given it is focusing on utilising the excess liquidity (excess SLR of INR 4.0trn) and gradually increasing its CD ratio. Domestic NIMs witnessed an uptick to 3.84% (+15bps QoQ) and management indicated that SBI is in a position to hold NIMs at current levels. Core PPOP growth was healthy at +19.5% YoY as benefit of strong NII growth at +29.5% YoY was moderated by elevated opex growth at +27% YoY (c.INR 15bn provision towards arrears of wage revision).

* Asset quality in fine fettle: Slippages remain under control at INR 34.6bn (0.5% of loans annualised), which coupled with recoveries and upgrades (INR 42bn) and write-offs (INR67bn) led to the improvement in asset quality parameters with GNPL/NNPL at 2.78%/0.67% (-36bps/-10bps QoQ). While restructuring pool improved to 0.76% (vs 0.85% QoQ), SMA 1 and 2 witnessed a decline to 0.10% (vs 0.16% in 3Q23). Provision costs were low at 0.4% (vs 0.8% QoQ) and SBI held non-NPL provisions to 1.1% of loans which should shield against future credit costs. We expect asset quality to remain robust and build in credit costs of 0.55% over FY24-25E.

* Valuation and view: SBI’s core fundamentals continue to be on a strong footing and delivery on growth front along sustained margins and controlled credit costs should drive incremental re-rating for the stock in our view. While current CET1 level of 10.3could be desirably higher, strong internal accruals and potential stake sale in subsidiaries (SBI Funds, SBI General Insurance) may augment capital and may delay the eventual dilution. Further, at current valuations, the capital raise will be BVPS accretive and thus we are not overtly concerned. We value SBIN’s core banking business at 1.2x FY25E BVPS to arrive at our revised SoTP-based target price of INR 700. Maintain BUY

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