SBI share price today: Emkay retains Buy rating with a revised target price of Rs 460

SBI once again surprised positively on asset quality, a phenomenon seen among large banks, leading to contained provisions and thus a strong 70%+ PAT beat at Rs 52 bn. SBI Proforma GNPA was lower at 5.4% (vs. 5.9% in Q2) due to its relatively resilient retail portfolio and better stress management in SME/agri, while restructuring too was low at 0.7% of loans. SBI retail credit growth is nearing pre-Covid levels (up 16% yoy), in turn led by mortgages where it commands leadership position, car loans and express personal credit built largely around PSU employees. SBI share price hits 10% upper ciruit today trading above Rs 390.

Emkay believes that SBI will be one of the biggest beneficiaries of the pick-up in lumpy corporate resolutions stalled for long and set-up of ARC to take out stress, leading to lower incremental NPAs/LLP. Emkay likes SBI’s strong liability profile, higher retail orientation among PSBs and sharply improving RoA/RoRWA, given renewed focus on profitability while maintaining market dominance and portfolio quality. Emkay retains Buy rating on SBI with a revised target price of Rs 460, rolling over standalone bank valuations to 1x FY23 ABV and subs/investment value at Rs 172.

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SBI retail credit growth gaining pace, which should lead to structurally strong NIMs:

Overall, SBI credit growth is picking up pace - 8% yoy/3% qoq, with retail growth nearing pre-Covid levels of 16% yoy, in turn led by mortgages where SBI already is a leader and auto where it intends to establish leadership position. Express credit book built largely around PSU/captive employees too has grown fast at 21% yoy/11% qoq. SBI Deposits continue to grow at a faster pace - up 14% despite bottom of the cycle rates given its strong liability franchisee, steadily gaining popularity among young millennials and perceived sovereign safety.

SBI has sustained healthy NIMs (>3% for past 3 qtrs) and could see further traction as we believe it will benefit from higher retail orientation, better investment yields and continued lower cost advantage. Thus, factoring in better margins and revival of fees, we expect the bank to clock healthy 14-16% core profitability growth and improve its ability to build counter-cyclical provisioning buffers.

Limited stress from Covid, corporate resolutions to drive-down credit cost for SBI:

SBI Proforma GNPA ratio is lower than expectation at 5.4% (vs. 5.9% in Q2) mainly due to better recoveries in otherwise secured & resilient retail portfolio, healthy clawback in agri NPAs and stress management in SME/Corporate via ECLGS/Restructuring. SBI believes that it could pull back and lead to better asset quality closure in FY21. Factoring in better asset quality performance and strong proforma provisioning buffer (incl specific/contingent provisions) of 75%, we expect lower LLP at 1.7%/1.2%/1% in FY21/22/23

SBI Outlook and valuation:

Emkay likes SBI among PSBs for its strong liability profile, high retail orientation, reasonable capital position, and sharply improving RoA/RoRWA, given renewed focus on profitability while maintaining market dominance and portfolio quality. Emkay Retained Buy/OW in EAP with a revised TP of Rs460 (valuing standalone bank now at 1x FY23 ABV (earlier 0.8x Dec 22 ABV) + subs/inv value at Rs172).

SBI Key risks:

Macro-slowdown & delay in corporate/retail credit demand, sharp rise in G-sec yields hurting treasury performance and tail-end asset quality risk in SME book