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Steady at the core, soft at the margin

SBIN reported a steady quarter with NII of INR 398bn (+0.8% QoQ, +4.6% YoY) as domestic NIMs declined -9bps QoQ at 3.34%. International NIMs was steady at +2bps QoQ at 2.21%. Higher opex from revision in wage provisions led to a PPoP of INR 203bn (+4.7% QoQ, -19% YoY). Credit costs remained lower at 0.21%, however revision of pension liabilities led to additional provisions worth INR 71bn which resulted in lower PAT of INR 91.6bn (-36% YoY,- 36% QoQ). Loan growth was healthy (+5.2% QoQ, +15% YoY) at INR 35.2trln while deposits growth was soft at +1.6% QoQ, 13% YoY at INR 47.6trln. Loan growth was wellrounded across sectors and management maintained its growth guidance of 14-15% going ahead. Asset quality improved sequentially with GNPL of 2.42% (-13bps QoQ) and NNPLs of 0.64% (flat QoQ). PCR for the bank remains strong at 74.2%. Mgmt expects CET1 to reach c.11% by Mar’24 (from current levels of 9.1%) driven by strong profitability in FY24E (currently considering 9MFY24 PAT, CET-1 stands at 10.4%). We believe delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters aiding controlled credit costs should lead to strong profitability going ahead. We build in RoA/ RoE of 0.94%/16% for FY26E. We value the core banking business at 1.2x FY26E P/BV and we arrive at our SoTP-based target price of INR 800. Maintain BUY.

Healthy loan growth: SBIN reported a healthy loan growth of +15% YoY, +5.2% QoQ driven by growth across all the segments: SME and agri loans grew at +7.5% QoQ and +6.5% QoQ respectively while corporate and retail loans grew at +5.5% QoQ and +4.3% QoQ. Retail loan growth was driven by Auto loans (+21% YoY, +7.9% QoQ), other P segment loans (+15% YoY, +4.3% QoQ) and Xpress credit (+16% YoY, +4.7% QoQ). Management maintains a loan growth guidance of 14-15% going ahead. Deposit growth was at +13% YoY, +1.6% QoQ led by +2.6% QoQ growth in time deposits. Domestic CASA deposits remained flat during the quarter while management guides for 12-13% growth in FY24. CASA ratio was down -70bps QoQ at 41.2%. We build in 14% CAGR credit growth and 10% CAGR deposits growth over FY24-26E.

Marginal decline in NIMs: NII stood at INR 398bn (+0.8% QoQ, +4.6% YoY as domestic NIMs declined 9bps QoQ at 3.34%. International NIMs was steady at +2bps QoQ at 2.21%. Higher opex from revision in wage provisions (from earlier 15% to 17%) led to a PPoP of INR 203bn (+4.7% QoQ, -19% YoY). Management guided that the provisions on wage revision of INR 5.4bn would be further added in Q4FY24 and the wage bill charges will be increased by INR c.15bn from FY25 onwards. Credit costs remained lower at 0.21%, however revision of pension liabilities to a uniform rate of 50% led to additional provisions worth INR 71bn which resulted in lower PAT of INR 91.6bn (-36% YoY,-36% QoQ).

Asset quality remains intact: Slippages remain under control at INR 41bn (vs INR 79bn QoQ) which coupled with recoveries and upgrades (INR 50.5bn) and write-offs (INR34.7bn) led to asset quality improvement with GNPL/NNPL of 2.42%/0.64% (- 13bps/flat QoQ). Restructuring pool improved to 0.54% (vs 0.62% QoQ). SMA 1 and 2 remained largely steady at 0.12% (vs 0.12% QoQ and 0.16% YoY). Provision costs were low at 0.21% (vs 0.23% QoQ) and SBI continues to hold healthy provision cover of 74.2% against NPAs which should shield against future credit costs. We expect asset quality to remain robust and build in credit costs of 29bps over FY24-26E.

Valuation and view: SBI’s core fundamentals continue to be stable while delivery on the growth front along with sustained margins and controlled credit costs should drive rerating of the stock. Mgmt expects CET1 to reach ~11% by Mar’24 (from current levels of 9.1%) driven by strong profitability in FY24E (currently considering 9MFY24 PAT, CET-1 stands at 10.4%) while they also remain open to raising funds in case of strong growth going forward. We value SBIN’s core banking business at 1.2x FY26E BVPS to arrive at our SoTP-based target price of INR 800. Maintain BUY.

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