PL Stock Report: State Bank of India (SBIN IN) - Q2FY24 Result Update - One time opex drag offset by lower provisions - BUY

State Bank of India (SBIN IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs578 | TP: Rs770

Q2FY24 Result Update - One time opex drag offset by lower provisions

Quick Pointers:

§ Core PPoP miss of 12.6% led by jump in opex by 20% QoQ (PLe 11.6%).

§ Headroom on LDR to cushion NIM when interest rates fall.

SBI reported a mixed quarter. While NII and loan growth were a bit better, core PPoP missed PLe by 12.6% due to one-time impact of wage revision that was offset by lower provisions (write-back in other provisions). Hence, core PAT beat PLe by 1.4%. Loan growth for FY24E is guided at 12-14% with retail/SME being key drivers. As per bank, credit quality in unsecured loans is strong since (1) 82% of customers are working with armed forces or Govt. and (2) GNPA ratio is low at 0.7%. NIM performance for SBI was superior to peers as decline in domestic NIM was lesser at 4bps QoQ. Bank sees limited NIM compression in H2FY24 which would be neutralized by better LDR (currently 71.3%). On capital SBI is targeting reach CAR/CET-1 of 15%/11% by FY24 mainly by plough back of profits (no fund raise). We roll forward to Sep’25 ABV but maintain multiple at 1.5x and SOTP based TP at Rs770. Retain ‘BUY’.

§ Core PPoP miss due to opex drag that was offset by lower provisions: NII was a tad higher at Rs395bn (PLe Rs391bn). Loan accretion was 13.3% YoY (PLe 12.9%) while deposit growth was 11.9% YoY (PLe 11.2%). NIM as expected was 3.1% with lower loan yields (8.9%) and funding cost (5.0%). Other income more at Rs108bn (PLe Rs89bn) due to treasury of Rs20.2bn; fees were a miss. Opex jumped by 20% QoQ to Rs309bn (PLe Rs286bn) due to both, higher staff cost and other expenses. PPoP was mainly in-line at Rs194bn while core PPoP at Rs155bn missed PLe by 12.6%. Asset quality was bit better; GNPA/NNPA was 3/2bps lower at 2.55%/0.64% owing to lesser net slippages. Higher opex was offset by negligible provisions at Rs1.15bn (PLe Rs27bn) due to utilization of std. and other provisions. PAT was a beat at Rs169bn (PLe 148bn). Core PAT at Rs153bn was 1.4% above PLe.

§ Loan growth led by overseas, retail, SME and agri: Loan offtake QoQ was led by overseas (+9.1%), SME (+5.2%), retail (+3.3%) and agri 3.7%. Retail growth was broad based with continued momentum in Xpress credit. Bank is not concerned with credit quality in Xpress loans as (1) 82% of customers are employed with armed forces or Govt. while 12% are working with reputed corporates and (2) GNPA level in Xpress credit is low at 0.69%. Aim is to grow SME book to Rs4trn by FY24 end driven by infrastructure, LMS, algorithm based pre-approved business loans etc. On corporate, bank has a pipeline of ~Rs3.4trn out of which ~Rs1.4trn is sanctioned. Management is witnessing higher traction in unavailed loans and higher utilization of WC which should translate to 10-12% loan growth.

§ NIM to hinge on LDR; opex drag led by further wage revision: Domestic NIM (reported) declined by 4bps QoQ due to catch up of deposit cost. Bank suggested that NIM could further decline 3-5bps which would be offset by increasing LDR (currently 71.3%). We see LDR to inch up to ~74% by FY26E. Opex was a miss as SBI provided Rs34bn (one-time) for wage revision basis 14% (earlier 12%) w.e.f. Nov’22. On capital, aim is to enhance CAR to 15.3% (now 14.28%) by FY24 end, via ploughing back profits that would translate to CET-1 of 11%+ (currently ~10%).

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