IGI Logo

Margin relatively stable and likely to remain so

Result Highlights (See “Our View” below for elaboration and insight)

* Asset quality: Gross NPA additions amounted to Rs 40.81bn (annualised NPA addition ratio of 0.5%) and recoveries and upgrades were healthy at Rs 40.15bn

* Margin picture: Whole bank NIM at 3.29% was down -4bps/-3bps QoQ/YoY, sequentially lower due to rise in cost of deposits

* Asset growth: Whole bank advances grew 3.3%/12.4% QoQ/YoY driven sequentially by SME, Retail, Agri. loans and International loans

* Opex control: Total opex grew 20.3%/34.6% QoQ/YoY, employee cost rose 14%/47% QoQ/YoY and other operating cost rose 31.7%/18.6% QoQ/YoY

* Fee income: Core fee income de-grew/grew -1.4%/10% QoQ/YoY, lower sequentially due to sharp fall in misc. fee income

Our view – Rise in wage hike assumption not really worrisome

The quantum of sequential margin decline is lower for SBI compared with several other banks: The decline in NIM is due to rise in cost of deposits, which has risen 10 bps QoQ to 4.65% for the domestic business. In terms of guidance, domestic NIM may remain stable at current levels by the end of the financial year or decline 3-5 bps. Further decline in NIM, if any, would also be caused by a rise in cost of deposits. On the positive side, there would be some residual impact of renewal of MCLR loans and there is also a possibility of a judicious MCLR hike. Furthermore, the domestic loan to deposit ratio is still low at 64%, which management expects to rise.

Staff expenses rose materially due to an upward revision in the assumption for wage hike: An incremental wage provision worth Rs 34.17bn was made during the quarter due to the wage hike assumption being revised from 10% to 14%. The steady state impact on wage provision due to the change in wage hike assumption is about Rs 4bn per month or about Rs 12bn per quarter.

As of now, there does not seem to be any strain on SBI’s growth and business model, as such, due to capital constraints: Management stated that the bank will plough back a high quantum of profit and achieve a CRAR of 15.32% and a CET1 ratio of 11% plus by the end of the financial year, excluding the impact of re-classification of investments

We maintain ‘Buy’ rating on SBI with a revised price target of Rs 755: We value the bank at 1.1x FY25 P/BV for an FY24E/25E/26E RoE profile of 15.4/14.8/15.7%. We assign a value of Rs 224 per share to the subsidiaries, on SOTP.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632