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Strong performance in Q4FY21; Outlook Positive

State Bank of India is India’s largest bank. The bank operates 22,219 branches globally and has a vast network of 62,617 ATMs/CDMs. It provides a wide range of financial services, such as insurance, credit cards and asset management, through its subsidiaries.

* Q4FY21 Net interest income improved 18.9% YoY, aided by strong liability franchise, deposits growth outpaced credit growth and better asset quality management.

* Operating profit came in at Rs. 19,700cr (+6.7% YoY; +13.7% QoQ) despite of higher employee costs on account of wage revision, Increase in DICGC premium and waiver of account management fee; PAT rose 80.2% YoY to Rs. 6,451cr.

* Slippage ratio at 1.18%, among the best with fresh slippages at Rs. 28,564cr in FY21 (vs. Rs. 49,647cr in FY20). Personal retail slippages at Rs. 3,287cr; ratio at 0.44% in FY21 with low risk & resilient portfolio.

* Backed by well-diversified loan portfolio and strong balance sheet with lower exposure to high risk sectors, we believe that the banks’ valuation remains attractive and hence we reiterate our BUY rating on the stock with a revised target price of Rs. 510 based on SOTP valuation.

Solid operating metrics in Q4FY21

For Q4FY21, NII grew 18.9% YoY to Rs. 27,068cr with NIM margin of 2.9% (16bps YoY), aided by deposits growth outpaced credit growth and strong liability franchise. Personal retail credit growth at 16.5% YoY at Rs. 8.7 lakh cr (40.0% of domestic advances). Increasing digital customer on boarding – 46.0% of retail asset accounts and 58.0% of liability customers added through digital channels in FY21 respectively. Credit offtake trend continues to improve with Home loan, Auto loan and personal loan segments. Profit/loss on sale of Investments declined to Rs. 37cr (-29.7% YoY), mainly includes one-off items in FY20. Resultantly, Cost to income ratio has marginally increased from 52.5% in FY20 to 53.6% in FY21.

Asset quality improves further

In Q4FY21, CASA ratio stood at 46.13% (97bps YoY). Domestic deposits improved 14.3% YoY mainly due to increase in Term deposits (12.2% YoY). Domestic advances grew 5.7% YoY, with increase in retail personal (+16.5% YoY). Marginal increase in Agri and SME segments (+3.9%; 4.2% YoY respectively). GNPA ratio at 4.98% (down by 117bps YoY) and NNPA ratio at 1.5% (down by 73bps YoY). PCR has improved to 87.75% (+413bps YoY); CAR has improved to 13.74% (+68bps YoY) on March 2021.

Key call highlights

* During April, collection efficiency stood at 95-96%, down ~20ps compared to March. May collection is currently similar to April levels.

* Share of Alternate channels in total transactions has increased from 91% in FY20 to 93% in FY21.

Outlook & Valuation

The bank has demonstrated solid performance with well diversified loan portfolio. Capital adequacy is well in-line with the risk of the loan portfolio. The bank is well positioned to deploy its excess liquidity into the credit growth as the market scenario improves. Hence we reiterate our BUY rating on the stock, with a revised target price of Rs. 510 using the SOTP methodology

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