MOSL: STATE BANK OF INDIA (Buy)-Asset quality disappoints-expect gradual recovery over FY19E
State Bank of India: Asset quality disappoints; expect gradual recovery over FY19E
(SBIN IN, Mkt Cap USD41.1b, CMP INR296, TP INR375, 27% Upside, Buy)
- SBIN reported a weak quarter, with slippages spiking up to INR267.8b (adversely impacted by divergence) and revenue missing estimate by 4%. Provisioning increased to INR188.8b, resulting in a loss of INR24.16b. However, on a positive side, 89% of the corporate slippages came from stressed assets, resulting in a decline in net stressed assets to 8.4% of total loans.
- Core PPoP held stable (1% QoQ growth), led by modest growth in core other income, while NII growth stood flat on a sequential basis. Operating expenses grew 3% QoQ, led by a rise in employee costs, as management provided toward potential wage increase. SBIN continues to see a net reduction in its employee base (down by 8,708 over the past six months).
- Loan growth was muted at 1.3% QoQ due to a continued run-down in large and mid-corporates, even as retail advances grew 3%/14% QoQ/YoY. SME portfolio showed some signs of revival, with 6% QoQ growth. Margins improved 2bp QoQ to 2.45%, aided by a stable CASA mix and re-pricing of the deposit portfolio. SBIN guided for 10% advances growth over FY19E.
- GNPLs/NNPLs increased by 7%/4.6% QoQ, adversely impacted by a divergence amount of INR232.3b. GNPL/NNPL ratios, thus, increased 52bp/18bp QoQ to 10.35%/5.61%. The PCR ratio improved 120bp QoQ to 48.6% (65.9% including technical write-offs). The bank has made 60% provisions on its aggregate NCLT exposure of INR783.1b (39% of total GNPLs). SBIN guided for 2% slippage and credit cost each for FY19. We expect asset quality to improve from FY19E onward and expect net NPL ratio to decline to 2.7% by FY20E.
State Bank of India provides a range of products and services to personal, commercial enterprises, large corporates, public bodies and institutional customers. Its segments include Treasury, which includes the entire investment portfolio and trading in foreign exchange contracts and derivative contracts; Corporate/Wholesale Banking, which comprises the lending activities of Corporate Accounts Group, Mid Corporate Accounts Group and Stressed Assets Management Group; Retail Banking, which comprises branches in National Banking Group, which primarily includes Personal Banking activities, including lending activities to corporate customers having banking relations with branches in the National Banking Group, and Other Banking Business, which includes the operations of all the Non-Banking Subsidiaries/Joint Ventures other than SBI Life Insurance Co. Ltd. and SBI General Insurance Co. Ltd. The Company had approximately 22,500 branches and 58,000 ATMs.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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