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MOSL: STATE BANK OF INDIA (Buy)-Credit cycle coming to an end; earnings to gain traction over FY19/20

State Bank of India: Credit cycle coming to an end; earnings to gain traction over FY19/20

(SBIN IN, Mkt Cap USD35.2b, CMP INR254, TP INR365, 44% Upside, Buy)

 

• SBIN reported a loss of INR77.2b, with slippages spiking up to INR336.7b (INR174.35b from known stressed book), even as total revenue exceeded our estimate by 9%. The size of watch-list declined to INR258b (including corporate SMA-2 and stressed SMA-1 advances). Also, excluding one telecom slippage, ~78% of total corporate slippage occurred from the stressed pool, resulting in a decline in gross stressed assets. For FY18, SBIN reported a loss of INR65.5b v/s profit of INR2.41b in FY17.
• Core PPoP grew by a moderate 2.4% QoQ, but was 6% higher than our estimate, led by 13% YoY growth in core other income. Operating expenses grew 10.4% QoQ, as the bank provided INR24.93b toward employee contribution (wage revision + gratuity limit increase). SBIN continues to see a net reduction in its employee base (declined by >15K over the past year).
• Loan growth recovered to 3.5% YoY (+6% QoQ), aided by a sharp sequential pick-up in the large- and mid-corporate portfolio, while retail advances growth stood at a healthy 14% YoY (+5% QoQ). Margin improved 5bp QoQ to 2.5%, aided by moderation in funding cost (5% YoY decline in interest expenses) and continued progression in the CASA mix (57bp QoQ increase to 45.7%). SBIN guided for 10% advances growth in FY19.