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MOSL: Morning India (23/August/21): 1. State Bank of India (PPOP conversion to PAT gaining traction; asset quality resilient); 2. Maruti Suzuki (Strategy for net zero emissions needs to be India focused)

MOrning India (23/August/21): 1. State Bank of India (PPOP conversion to PAT gaining traction; asset quality resilient); 2. Maruti Suzuki (Strategy for net zero emissions needs to be India focused)

 

Today’s top research idea

State Bank of India: PPOP conversion to PAT gaining traction; asset quality resilient

• SBIN has demonstrated a strong improvement in asset quality, with fresh slippages moderated sharply to 1.2% in FY21 (2.5% in 1QFY22), lower v/s many of its private peers. AUCA book stood at INR1.72t - higher than the GNPL pool, with recoveries in the 6-11% range. We expect the recovery trends to continue as the IBC process gains pace after a long pause due to the COVID-19 restrictions.
• SBIN appears well positioned to report strong uptick in earnings, led by moderation in credit cost from FY22. During FY19-21, SBIN has shown a remarkable improvement in asset quality, reducing net NPLs to 1.8% at present from 5.7% in FY18, while PCR stands comparable to many well-run Private Banks.
• We estimate 14% CAGR in PPOP over FY21-23E (v/s 6% CAGR over FY18-21). Overall PPOP to provision coverage should strengthen to 2.5x by FY23E (v/s an average of 1.3x over FY18-21), while RoE expands sharply to ~15% and reach their decadal highs in FY23E. Maintain Buy with a TP of INR600 (1.4x FY23E ABV+INR190 from subsidiaries/JVs).

Piping hot news

FM to launch 4-year national asset monetisation plan on Monday

• Finance Minister Nirmala Sitharaman will launch the National Monetisation Pipeline (NMP) on Monday that will include the Centre’s four-year plan to monetise its brownfield infrastructure assets. The government has planned a Rs 6-trillion pipeline of assets that can be monetised, which will include a range of assets put on the block for private sector participation.