IGI Logo

NIMs contract 7bp QoQ

-      SBIN’s 3QFY24 PAT of INR91.64b came in 17% below our estimate of INR110b, affected by higher wage provisions and an exceptional item of INR71b. Adjusting for the exceptional item, net profit would have been INR144b.

-      NII grew 4.6% YoY/0.8% QoQ (in line). NIMs declined 7bp QoQ to 3.22% (domestic NIMs at 3.34%, down 9bp QoQ).

-      Slippages increased marginally to INR50.5b, while healthy recoveries and write-offs led to a 13bp decline in the GNPA ratio. RSA pool declined to INR189b or 0.6% of advances.

-      We raise our FY25 EPS estimates by 4.6% as the wage/pension provisioning gets completely done with in FY24 and expect the overall credit cost to remain under control. We estimate FY25 RoA/RoE of 1.1%/19.6%. Reiterate our BUY rating with an unchanged TP of INR800 (based on 1.2x Sep’25E ABV + INR218 from subs).

Revenue growth steady; guides for lower wage provisions

-      SBIN reported a 36% YoY decline in net profit to INR91.6b as the bank navigated through higher wage provisions and an exceptional item of INR71b. NII grew 4.6% YoY (largely in line), while margins declined by 7bp QoQ to 3.22% (in line).

-      Other income grew 6.2% QoQ (flat YoY), as treasury gains remained healthy at INR25b. Core other income grew 5% YoY.

-      In 3Q, SBIN made wage-related provisions of INR63b (for a 17% wage hike). For 9MFY24, wage-related provisions stood at INR127.2b. For 4Q, the bank guides for lower wage provisions at INR54b. It also made a provision of INR2.4b for its AIF exposure. As a result, PPoP declined by 19% YoY to ~INR203b, while Core PPoP declined 20% YoY.

-      Advances grew ~15% YoY/5.2% QoQ, led by 15% YoY growth in retail and 19% YoY growth in SME segment. Agri book grew 18% YoY, while corporate growth picked up to 11% YoY. Retail growth was driven by home loans (13% YoY/3.2% QoQ; 54% of retail book), while Auto/Xpress credit grew 21%/16% YoY. Deposit growth was slow at 13% YoY/1.6% QoQ, while the CASA mix declined 70bp QoQ to 41.2%. Domestic CD ratio thus increased to 66.3%.

-      Slippages increased marginally to INR50b or 0.7% of advances, in 3Q. While continued robust recoveries/write-offs led to a 13bp QoQ drop in the GNPA ratio to 2.42%. The NNPA ratio remained flat at 0.64%. Restructured book declined to INR189b (0.5% of advances), while SMA 1/2 portfolio stood at INR41.3b (12bp of loans).

-      Subsidiary performance: SBICARD clocked a PAT of INR5.49b (up 8% YoY). SBILIFE’s PAT grew 6% YoY to INR3.2b. PAT of the AMC business increased by 45% YoY to INR5.4b, while SBI General reported a profit of INR750m vs. a profit of INR130m in 3QFY23.

Highlights from the management commentary

-      Wage revisions increased to 17% from 14%; 10% was provided from Nov’22 onward. The bank had provided INR88.9b as of Sep’23 and provided additional INR63.13b in 3Q. Total provisions thus stood at INR127.18b in FY24. The bank expects to make residual INR54.08b of wage-related provisions in 4Q.

-      After wage provisioning in FY24, the wage bill will be INR660b in FY25E vs. INR770b (total at INR770b + INR71b {one offs} = INR 841b) in FY24.

-      CET-1 ratio stands at 10.38% and the bank is open to raise more capital if growth trends demand it. The bank is also reviewing AT1 prices and will make sure that capital will not be a constraint for growth.

Valuation and view

SBIN reported a mixed quarter as one-off pension provisions impacted earnings, whereas high wage provisions were partially offset by a decline in loan loss provisions. Operating expenses thus remained high, thereby affecting PPoP growth. The management anticipates lower wage provisions at INR54b in 4Q. Consequently, we expect improvement in operating profitability in FY25. Margins contracted 7bp QoQ to 3.22% in 3Q; however, the bank expects margins to remain broadly stable, with a potential 1-2bp decline. The bank has various levers such as CD ratio and MCLR repricing to keep margins stable. Business growth remains robust, with signs of a recovery in the corporate segment. Asset quality remains healthy as the GNPA ratio improves further and the restructured book is well-managed at 0.5% of advances, while the SMA pool stands at 12bp of loans. We estimate SBIN to deliver RoA/RoE of 1.1%/19.6% in FY25. We maintain our BUY rating with an unchanged TP of INR 800 (1.2x Sep’25E ABV + INR 218 from subsidiaries).

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412