SBI Share price: As the State Bank of India (SBI) stocks continued its bullish run on Friday, eclipsing its previous high levels of Rs 427, Sharekhan maintained a Buy rating on this PSU Bank stock with a revised SOTP-based price target of Rs 520. At 11 am, this stock was trading at 426.25 on the NSE, up by almost 0.3 per cent. The intraday high was at 433.65.

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Sharekhan said that State Bank of India posted strong Q4FY2021 results, with largely in line with expectations operational numbers and improved asset quality as compared sequentially on proforma position, which underlines its strong underwriting and recovery capabilities, and the well-maintained asset-quality trend continues. Net interest income (NII) of Rs 27067 cr grew by healthy 19% yoy and was marginally below expectations.

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However, strong non-interest income of Rs 16225 cr posted 21.6% yoy and 75% qoq growth, which resulted in pre provision operating profit (PPOP) of Rs. 19700 cr, up 25.2% yoy and 14% qoq, coming better than expectations. PAT came at Rs 6451 cr, was up 80% yoy and up 25.6% yoy, in-line with expectations. Asset quality improved on a sequential basis, with GNPA/NNPA at 4.98%/1.5% as compared to 5.44%/1.9% as of Q3FY2021 (on a proforma basis). Provision coverage ratio (PCR) has also improved to a healthy 87.8% as compared to 83.6% in FY2020. Credit growth was tepid at 5.67% yoy, mainly driven by retail (personal) advances (16.47% yoy), SME (4.2% yoy), and corporate advances (3.9% yoy), says Sharekhan.

SBIs Home loan, which constitutes 23% of the bank’s domestic advances, has grown by 10.5% y-o-y. However, more than the operational part, it was the asset-quality performance that was a positive surprise. Despite being a year impacted by the pandemic, slippages ratio for FY2021 has declined to 1.18% from 2.16% as at the end of FY2020. Moreover, credit cost at the end of FY2021 has declined by 75 bps yoy to 1.12%, which indicates strong asset-quality performance of the bank. SBI’s retail asset quality has been robust (<50 bps credit costs) over the past decade, and with the end of the corporate credit cycle, SBI’s asset quality is finally emerging from the shadows to deliver better asset quality outcomes and is now comparable with even private banks. Sharekhan have fine-tuned our earnings and see SBI’s strong performance, strong balance sheet, market-share gainers can be drivers for re-rating of the stock.

SBI Key positives:

Strong asset-quality performance, with total slippages and restructuring for FY2021, is well contained at Rs 46416 cr, which is 2.1% of total domestic advances
Strong retail deposit traction with CASA ratio at 46.10% (improving from 45% in Q3FY2021)
This is despite the bank paring deposit SA rates over the past few years
This indicates the franchise value and strength of the bank

SBI Key negatives:

Tepid credit growth continues with domestic advances growing by 5.67% yoy in FY2021, despite healthy 14% yoy deposits growth.

SBI Key risk:

Slower-than-expected or delayed recovery in India’s economic growth (due to the ongoing pandemic) also a credit risk of higher slippages in the MSME etc. segment may impact earnings and book value