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Strong growth & Flat NII; One-off dents profitability

Result and Price Analysis

State Bank of India (SBIN) has delivered a lukewarm operating performance, however, a strong show in credit growth and assets quality front. It’s reported GNPA (2.42% v/s 2.55% in 2QFY24) and NNPA (0.64% v/s 0.64% in 2QFY24) holds steady with stable PCR (incl. AUCA) of 92%. Furthermore SMA1&2 (12bps) is sound sequentially. The bank has witnessed better than expected advance growth (14.5% YoY & 5.1% QoQ) led by growth across segment and steady deposit base (13% YoY & 1.6% QoQ) sequentially with better liquidity position. Moreover, the PPOP up 4.7% sequentially despite high operating cost (C/I: 61.3%). The net profit declined by 35.5% YOY and 36.1% QOQ on the back of one-off of ?71bn towards provision for pension liability. On the other hand muted NII growth (Domestic NIMs: 3.34%) and high opex (mainly staff cost) dent the profitability further. The 3QFY24 calculated ROA and ROE stood at 0.62% and 9.94% respectively; nonetheless, 9MFY24 ROE is above target ROE of 15%. The bank has established total standard asset and contingent provision of ~?335bn (95bps of net advances) as on 3QFY24. With ample contingent buffer (against ECL provisions) and strong growth outlook, we believe the annual ROE target of 15% is achievable in FY24E/25E. Therefore, we recommend BUY with target price of ?746.

Gazing the core

One-off and high staff cost dragged profitability:Domestic NIMs (3.34%) down by 9bps sequentially and the CD ratio is comfortable at 73.9%, while the bank believes there is scope to raise MCLR rates further. Overall, the bank doesn’t see much risk to the current margin levels in the coming quarters. YOA and COD stood at 8.88% and 4.75% against 8.86% and 4.65% in the previous quarter. Overall NIMs down by 9bps to 3.22%. It translated in 0.8% sequential growth in NII (398bn). Non – interest income up by 6.2% sequentially. However, operating expenses ratio improved (C/I: 60.3% v/s 61.4% in 2QFY24) resulted in the PPOP growth of 4.7% sequentially. The bank reported exceptional item (one-off) of ?71bn towards provision for adverse judgment on pension liability.

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