MOSL: STATE BANK OF INDIA (Buy)-Earnings set to revive amidst uncertain macros; Risk-reward has turned favorable
STATE BANK OF INDIA: Earnings set to revive amidst uncertain macros; Risk-reward has turned favorable
(SBIN IN, Mkt Cap USD33.3b, CMP INR265, TP INR350, 32% Upside, Buy)
- State Bank of India's (SBIN) earnings were suppressed for the past several years due to issues pertaining to asset quality, merger and an adverse rate environment. Even now, the macro environment remains challenging with high rating downgrades in the system, resulting in new names being added to the stressed pool. However, given SBIN's size, we believe the new stress is manageable (~2% of total loans).
- In our opinion, SBIN is well poised for an earnings recovery led by steady operating performance at the PPOP level (14% CAGR over FY19-FY21E), recoveries from large NCLT resolutions and normalization in credit cost to 1.9%/1.3% over FY20E/FY21E v/s average of 3.0% over FY16-19.
- SBIN's stock price has corrected 29% over the past three months, which provides favorable risk-reward, in our view. We conservatively expect RoA/RoE to improve to 0.7%/12.7% by FY21 and maintain our target price of INR350 (1.1x FY21E ABV for the bank + INR94 per share for subsidiaries). Maintain Buy.
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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