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MOSL: STATE BANK OF INDIA: Treasury drag behind; earnings set to soar

STATE BANK OF INDIA: Treasury drag behind; earnings set to soar

(SBIN IN, Mkt Cap USD59.8b, CMP INR531, TP INR625, 18% Upside, Buy)

• SBIN reported a 14% YoY growth in core PPOP. However, higher treasury losses (INR65.5b) dented earnings, which declined 7% YoY to INR60.7b.
• NII stood a tad weaker. However, the outlook remains encouraging as the bank benefits from the re-pricing of its floating rate loan portfolio, amounting to 74% of total loans. We expect NII to grow at an average 16% over FY22-24.
• Despite a rise in fresh slippages to INR101b, the GNPA/NNPA ratio declined marginally by 6bp/2bp QoQ to 3.91%/1% in 1QFY23, led by recoveries and upgrades. The restructured book fell to 1% of loans.
• A higher than expected treasury loss resulted in a marginal cut to our FY23 earnings estimate. However, we expect SBIN to report a strong earnings progression right from 2QFY23, resulting in 29% earnings CAGR over FY22-24. We estimate a RoA/RoE of 0.9%/17% in FY24. SBIN remains one of our conviction Buy in the sector.

 

Decline in margin transitory; asset quality improves in a seasonally weak quarter

• SBIN reported a 7% YoY decline in PAT to INR60.7b (20% miss to MOSLe) in 1QFY23, impacted by adverse MTM losses of INR65.5b. NII grew 13% YoY (4% miss). Domestic NIM fell 13bp QoQ to 3.23% as there was an interest income of INR6b on an income tax refund in 4QFY22.
• Other income fell 80% YoY to INR23b, resulting in a total revenue of INR335 (15% miss), due to an adverse MTM. Core fee grew at 18% YoY.
• OPEX was flat YoY, while PPOP fell 33% YoY to INR127.5b. However, core operating profit grew 14.4% YoY to INR193b.
• Gross advances grew 14.9% YoY and 2.9% QoQ, led by a 9%/3% QoQ growth in international loans/Retail book. The SME book grew 2.4%, while the Agri and Corporate book was flat QoQ. The growth in international loans was led by syndicated debt and trade finance, while Xpress Credit/Home loans led the show in the Retail portfolio. Deposits grew 9% YoY (flat QoQ), with the CASA mix up 5bp at 45.3%. The bank aspires to increase market share in current account deposits to boost its CASA ratio.
• Despite a rise in fresh slippages QoQ to INR101b, the GNPA/NNPA ratio fell marginally (by 6bp/2bp) to 3.91%/1% in 1QFY23, led by recoveries and upgrades of INR52b and write-offs of ~INR36.6b. Restructuring loans fell 7% QoQ to INR288b (1% of loans), while the SMA 1/2 portfolio grew 97% to INR69.8b. PCR ratio was steady at 75% (90.1% including AUCA)
• The strong performance of its subsidiaries: SBICARD reported a PAT of INR6.3b (up 106% YoY). The same for SBILIFE grew 18% YoY to INR2.6b. PAT for the AMC business was flat on a YoY basis at INR2.5b. SBI General reported an 83% YoY rise in PAT to INR1.4b in 1QFY23.