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MOSL: Morning India (3/December/19): 1. State Bank of India (Earnings momentum to accelerate); 2. EcoScope (EAI); 3. Automobile (Nov-19 wholesales)

MOrning India (3/December/19): 1. State Bank of India (Earnings momentum to accelerate); 2. EcoScope (EAI); 3. Automobile (Nov-19 wholesales)

 

Today’s top research idea

State Bank of India: Earnings momentum to accelerate; Subs monetisation a big trigger

• State Bank of India has delivered 28% returns since our last in Oct'19. There have been significant developments over the past two months which have supported this performance: (i) Essar Steel resolution enabling significant write-backs for banks, (ii) upcoming listing of its cards subsidiary at proposed valuation of ~INR600b and (iii) easing of stress in the telecom sector, aided by the recent tariff hikes and the government deferring payment of spectrum fees.
• Although the macro environment remains challenging, NSL for SBIN at 0.8% of loans are the lowest amongst peers. This, along with anticipated provisioning write-backs, will enable normalization in credit cost, in our view.
• We upgrade our FY20/21 earnings estimates by 15%/12% and project credit cost to decline to 1.3% by FY21. We thus estimate RoA/RoE to improve to 0.8%/14.1%. Maintain Buy with a revised TP of INR425 (1.3x FY21E ABV + INR114 for subs).

Piping hot news

Scrappage policy: No direct sops for junking old cars

The government is unlikely to offer any direct incentives for junking old vehicles but will empower states and automakers to provide sops against scrapping certificates. The transport ministry, which had circulated a Cabinet note on the Voluntary Vehicle Scrappage Policy for inter-ministerial comments, has received approval from all the ministries concerned, an official said.