MOSL: STATE BANK OF INDIA (Buy)-Asset quality pressure easing-earnings set to accelerate
State Bank of India: Asset quality pressure easing; earnings set to accelerate
(SBIN IN, Mkt Cap USD36.0b, CMP INR295, TP INR370, 25% Upside, Buy)
- SBIN reported PAT of INR9.4b (ahead of our estimate), largely driven by robust other income; NII growth was in line with our estimate. Other income was mainly supported by INR15.6b of gain from stake sale in SBI General Insurance. PPoP, thus, increased 16% QoQ to INR139b.
- Watch-list, including SMA-1 and 2, declined to INR204b (0.98% of loans; 1QFY19: INR246b). Of the standard power exposure of INR1,463b, INR99.7b is included in the watch list, while the remaining exposure continues to be standard. Around 66% of the power exposure is rated A- and above.
- Retail segment maintained healthy growth of 14%/3% YoY/QoQ, while Corporate/Mid-corporate segment growth stood at 14% YoY. Management guided for 12% loan CAGR until FY20.
- Opex grew 12% YoY (declined sequentially), as SBIN recognized INR9.02b of gratuity liability (pending INR9.02b to be provided) and also made wage provisions of ~INR9b in 2QFY19. Consequently, employee expense increased ~26% YoY to INR96.9b.
- Fresh slippages came in at INR107.2b (INR108.8b including debits), even as corporate slippages declined to INR31.8b (~75% from the watch-list). Non-corporate slippages stood higher, but we expect the trend to improve, going forward. High provisions and lower slippages, thus, drove a 3.3%/4.5% QoQ decline in GNPLs/NNPLs, while the coverage ratio was flat at 53.4% (70.7% including technical write-off). GNPL ratio, thus, declined 74bp QoQ to 9.95%, while the net NPL ratio declined to 4.84% (5.29% in 1QFY19). SBIN holds 70% provision on NCLT exposure and is expecting write-backs here.
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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