STATE BANK OF INDIA
RATING: BUY; TARGET PRICE: Rs 360; CMP: Rs 295; UPSIDE: 22.1%
SLIPPAGES FOR THE QUARTER DECLINED
SBIN reported PAT of Rs 9.45b in 2QFY19 (vs loss of Rs 3.36b JMFe). Profit for the quarter was aided by one–off exceptional items pertaining to a) stake sale in SBI General (Rs 4.7b) and b) sale of bank’s merchant acquiring business to SBI Payment Services (a wholly owned subsidiary, for Rs 10.9b). PBT (excluding exceptional items) was at Rs 2.5b (vs loss of Rs 72b in 1Q). Slippages for the quarter declined 24 per cent QoQ to Rs 109b (2.3 per cent annualised), with specific credit cost declining c.70bps QoQ to 2.2 per cent. Corporate slippages are seemingly under control for SBIN, contributing c.30 per cent (Rs 32b) to slippages for the quarter, with the balance from retail/SME and agri books. Net ex-NPL stress has now declined to 1.6 per cent of loans for SBIN.
■ Slippages and credit cost decline: Slippages for the quarter declined 24 per cent QoQ to Rs 109b (2.3 per cent annualised), with specific credit cost declining c.70bps QoQ to 2.2 per cent. Corporate slippages are seemingly under control for SBIN, contributing c.30 per cent (Rs 32b) to slippages for the quarter, with the balance from retail/ SME and agri books. The watchlist declined 17.3 per cent sequentially to Rs 204b (1 per cent of loans). Net ex-NPL stress has now declined to 1.6 per cent of loans for SBIN. Management guided for a continued moderation in specific credit cost to below 2 per cent levels in H2FY19. SBIN made separate disclosures on its power and NBFC portfolios : a) On power – Total exposure is Rs 1.8trn (9 per cent of loans), with NPLs at 18 per cent (41 per cent PCR). Private power makes up 40 per cent of the total standard exposure with 19 per cent rated BB+ and below. b) Bank’s exposure to NBFCs / HFCs is at Rs 1.5trn (8 per cent of loans), with HFCs contributing 33 per cent.
■ Steady operating quarter: SBI reported PAT of Rs 9.4b aided by extraordinary income of Rs 15.6b derived from stake sales in subsidiaries. NII growth was healthy for SBI at 13 per cent YoY as NIMs held up at 2.73 per cent (-7bps QoQ), despite an unfavourable base in the previous quarter which saw large interest write-backs from NCLT recoveries. Gross loan growth was healthy at 9.3 per cent YoY, with corporate and retail segments both growing at 14 per cent YoY, while growth in the SME segment was at 5 per cent YoY. Core fee income (ex-recoveries in written off accounts, treasury income) was another strong positive in the quarter (+22 per cent QoQ), which led to a healthy PPoP growth of 3 per cent QoQ.
■ Valuation and view: We value SBIN at 1.3x FY20E adjusted BVPS, with subsidiaries contributing Rs 82 to our TP.