MOSL: STATE BANK OF INDIA (Buy)-Earnings momentum to accelerate; Subs monetisation a big trigger
STATE BANK OF INDIA: Earnings momentum to accelerate; Subs monetisation a big trigger
(SBIN IN, Mkt Cap USD42.2b, CMP INR339, TP INR425, 26% Upside, Buy)
- State Bank of India (SBIN) has delivered 28% returns since our last on the bank 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, net stressed loans 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 (guidance: <1%). We thus estimate RoA/RoE to improve to 0.8%/14.1%. Maintain Buy with a revised target price of INR425 (1.3x FY21E ABV + INR114 per share for subs). Subs accounts for ~34% of total valuation.
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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