SBI, HDFC Bank, ICICI Bank and Axis Bank share prices in focus, see what Jefferies says about these large Indian Banks

Jefferies has put SBI, HDFC Bank, ICICI Bank and Axis Bank share prices under focus and has come out with its take on Indian Financials. Read Through Channel Checks From SBI Card Q2 numbers saw NPL ratio rise from 1.4% in Q1 to 4.3% in Q2; also 3.2% is in standstill & 9% is restructured (17% stress). This puts doubt on the credit card book of larger Private Banks like HDFC Bank, ICICI Bank and Axis Bank.

Jefferies channel checks point that they are more conservative with higher share of internal clients, controlled credit limits & better clients; their focus is on fees vs. revolvers. Seems ICICI Bank is more conservative. Hence, Jefferies don't see such risks for larger banks. 

Company Valuation / Risks of large Banks

State Bank of India - SBI:

Jefferies values State Bank of India at Rs 215 based on SOTP (sum of parts valuation). They value the core banking business at 0.6x adj P/B, SBI Life at Rs1,040, SBI Cards at CMP and Asset management business at 30x P/E. The upside risks are Improvement in asset quality, higher NIMs and higher than expected loan growth while the downside risks are Lower NIM, weaker loan growth and asset quality issues.

Axis Bank:
Jefferies value Axis Bank at 1.8x forward adjusted P/B (June-22E) for a share price target of Rs 550. The downside risks are higher slippages in the retail / corporate loan segment and NIM compression.

HDFC Bank:

Jefferies values HDFC Bank based on SOTP (sum of parts valuation) to arrive at a share price target of Rs 1,450. They value the standalone bank at 3.4x adjusted P/B (Sept 22E). Jefferies values the subsidiaries - HDB Financial services at 2.2x adj. P/B (Sept 22E) and HDFC securities at 16x forward P/E (Sept 22E) which together account for Rs 56 per share. The downside Risks are weak core pre provisioning operating profit trend and asset quality pressure from unsecured retail portfolio

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ICICI Bank:

Jefferies value ICICI Bank at Rs 480, core banking at 1.6x adj book, ICICI Prudential Life and ICICI General Insurance at target price & ICICI securities at market price, AMC at 30x P/E and other subsidiaries accounting for Rs 18/share. The downside risks are higher NPL and weak earning trajectory.

(Authored by Rahul Kamdar)