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Result Highlights

* Asset quality: Gross NPA additions amounted to Rs 32.09 bn (annualized NPA addition ratio of 0.4%) and recoveries and upgrades were healthy at Rs 16.43bn
* Margin picture: Whole bank NIM at 3.50% was up 18bps/35bps QoQ/YoY, sequentially higher due to yield on advances moving up faster than cost of deposits

* Asset growth: Whole bank advances grew 3.2%/17.6% QoQ/YoY driven sequentially by SME and Retail loans
* Opex control: Total opex grew 6.0%/16.7% QoQ/YoY, employee cost grew 14.7%/18.3% QoQ/YoY and other operating cost fell/rose -5.1%/14.3% QoQ/YoY
*  Fee income: Core fee income de-grew/grew -0.3%/3.1% QoQ/YoY, lower sequentially due to lower Loan processing fees and commissions.

Our view – Investment thesis still intact for SBI

Loan exposure to the corporate group in the news is not outsized: The loan outstanding to the corporate group (presumably Adani Group) is 0.88% of total outstanding loans of the bank as of December 2022, which is not outsized. Provisions for the quarter were Rs57.6bn, up by 89.6% QoQ but down -17.4% YoY. These provisions included a material amount of discretionary standard asset provisions of about 30-40 bps

Margin at healthy levels and regarded as sustainable, by management: 74% of the loan book is either on MCLR or EBLR. The share of MCLR alone is 40%. Management

Equity capital raise not necessarily required to sustain growth in FY24: The capital adequacy ratio and CET1 ratio amounted to 13.27% and 9.26%, respectively, without including profit for 9M. Once profit is ploughed back, capital adequacy ratio would be in the 14.5% range (presumably, as of 4Q). This can support a loan growth of Rs 7 trn, which would imply a loan growth easily in excess of 20%, in terms of capacity.

Deposits growth has lagged but justifiable, as of now, given low CD ratio: Total deposits growth for the bank was 8.9% YoY. The CD ratio of the bank is still on the lower side and the bank is holding excess SLR worth Rs 3.2 trn and hence, is in less need to grow deposits fast. The domestic credit to deposit ratio is about 66-67%. Management guided that loan growth should be in the 13-16% range.

We maintain ‘Buy’ rating on SBI with a revised price target of Rs 780: We value the bank at 1.4x FY24 P/BV for an FY23E/24E/25E RoE profile of 14.2/15.2/16.0%. We assign a value of Rs 205 per share to the subsidiaries, on SOTP.

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