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NPA resilience continues; improving outlook…

About the stock: SBI is a public sector bank and also the largest bank in India with a balance sheet size of over | 45 lakh crore.

* Strong liability franchisee with trend setting abilities in terms of rates.

* Best operating metrics in the PSU banking space.

Q1FY22 Results: Steady operating performance; asset quality resilient.

* GNPA rose 34 bps QoQ to 5.32%; restructuring up 28 bps to ~1%

* NII up 3.74% YoY, NIM up 2 bps QoQ to 2.92, C/I down 260 bps to 51.9%

* Provision buffer at | 29816 crore, including Covid provisions at | 9065 crore

* Advances down 0.7% QoQ and deposits up 1.1% QoQ to | 37.2 lakh crore.

What should investors do?

SBI’s share price has surged ~2x in the past five years. We believe considering overall strength in liability franchisee, decent provisioning cover and quick recovery with unlocking should be positives for SBI.

* We retain our BUY rating on the stock.

Target Price and Valuation: We value the bank at ~1.25x FY23E ABV and subsidiaries at ~| 180 per share to arrive at a revised TP of | 540 from | 500 earlier.

Key triggers for future price performance:

* Healthy recovery in July 2021 depicts resilience on asset quality

* Improving credit-deposit ratio, thus, NIMs to aid operational performance

* Additional provisioning to the tune of 1% provides cushion

* Healthy pipeline to aid business growth and overall performance.

Alternate Stock Idea: Besides SBI, in our coverage we also like Bank of Baroda.

* Bank of Baroda is the second largest PSU with decent prospects of meaningful improvement in operational performance

* BUY with target price of | 100

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