MOSL: STATE BANK OF INDIA (Buy)-Asset quality pressure easing; remain constructive amidst volatility
State Bank of India: Asset quality pressure easing; remain constructive amidst volatility
(SBIN IN, Mkt Cap USD39.5b, CMP INR304, TP INR360, 18% Upside, Buy)
- SBIN reported a loss of INR48.76b, largely driven by the complete absorption of MTM losses, as it made investment depreciation provisions of INR71b. Asset quality improved, aided by moderation in fresh slippages and resolution of two NCLT cases. The size of watch-list including SMA-1 & 2, thus, declined to INR246.3b (1.3% of loans; INR289.9b in 4QFY18).
- NII stood at INR218b (our estimate: INR205b), aided by asset recovery of INR19.3b via interest income, even as the loan portfolio declined 3% QoQ (~12% QoQ decline in overseas portfolio). Core PPoP grew 12% YoY to INR113b, while the margin improved 44bp YoY to 2.8%.
- Retail segment maintained healthy growth of 14% YoY, while the corporate/mid-corporate segment reported a sequential decline. Management guided for 12% loan CAGR till FY20E.
- Opex grew 20% YoY (flattish sequentially), as SBIN recognized INR9.02b of gratuity liability (pending INR18.05b to be provided by 3QFY19) and also made wage provisions of ~INR10b. Employee strength reduced to ~260k v/s 273k last year, and the bank is looking at further retirements of 11.7k in FY19.
- Fresh slippages moderated to INR99.8b (143.5b including debits), even as corporate slippages declined to INR37b (~91% from the watchlist). Non-corporate slippages stood higher (details inside), but this is seasonal in nature and we expect the trend to improve, going forward. High provisions, NCLT resolutions and lower slippages, thus, drove a 4.7%/10.5% QoQ decline in GNPLs/NNPLs, while the coverage ratio improved 300bp QoQ to 53.4% (69.3% including technical write-off). GNPL ratio, thus, declined 22bp QoQ to 10.69%, while the net NPL ratio declined to 5.29% (5.73% in 4QFY18). SBIN holds 71% 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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