PL Stock Report: State Bank of India (SBIN IN) - Q1FY24 Result Update - NIM upgrade to depend on loan growth - BUY

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

Rating: BUY | CMP: Rs573 | TP: Rs770

Q1FY24 Result Update - NIM upgrade to depend on loan growth

Quick Pointers:

§ Core PAT miss of 2.8% led by lower NII due to softer loan growth.

§ Asset quality was stable; strong balance sheet among PSU banks.

SBI saw a stable quarter; while core PAT missed PLe by 2.8% due to lower loan growth, NIM was largely in-line at 3.2% and asset quality was steady. Bank sounded confident of achieving a 15% growth in FY24E given (1) excess SLR of Rs4.0trn and (2) current capital can support growth of Rs7trn. We are factoring a 13% CAGR in loans over FY23-25E as sustained corporate growth is imperative to achieve 15% overall growth. Reported domestic NIM came in at 3.47% and bank would like to maintain this level of NIM for FY24E. However, we are factoring a 5bps decline in overall FY24 NIM to 2.94% and NIM upgrade would hinge on MCLR book repricing and better loan growth. As SBI is focused on physical and digital expansion, we raise opex by avg. 3.7% for FY24/25E which would be offset by reduction in provisions by avg. 33bps. We maintain multiple at 1.5x on core FY25E ABV. Retain ‘BUY’ with TP at Rs770.

§ Miss on core PAT by 3% due to lower NII; asset quality largely in-line: NII was lower at Rs389.1bn (PLe Rs395bn), due to softer loan growth as NIM was in-line. Loan accretion was slower at 14.9% YoY (PLe 16.5%), while deposit growth was 12% YoY. NIM was in-line at 3.20% (PLe 3.22%) with loan yields (8.9%) and funding cost (4.8%) meeting estimates. Other income was higher at Rs121bn (PLe Rs96bn) due treasury gains of Rs38.5bn; fee was a bit better. Opex was a beat at Rs257bn (PLe Rs264bn) due to lower other opex. Given treasury gains, PPOP was ahead at Rs 253bn (PLe Rs227bn) while core PPoP missed PLe by 3.4%. Asset quality was broadly in-line; GNPA/NNPA was 2.76%/0.71%, while net slippages were Rs42.7bn (PLe Rs45bn). PAT was a beat at Rs169bn (PLe 148bn). Core PAT at Rs153bn was 2.8% below PLe.

§ QoQ loan growth led by retail/SME: Loan offtake QoQ was led by domestic credit attributable to SME (+2.8%), retail (+2.1%) & agri (+2.1%). Retail growth was broad based with continued momentum in Xpress credit. While corporate growth was muted at +0.2% QoQ, bank currently has a pipeline of Rs3.5trn (sanctioned Rs1.2trn) of which Rs2.7trn is from private sector and balance from public sector. Overseas book de-grew by 1.9% QoQ; SBI has been cautious due to challenges in global markets. Bank expects to grow by 15% YoY in FY24, while we are factoring a 13% CAGR over FY23-25E since we would like to see sustained corporate growth. Commentary suggested deposit accretion may not control asset growth, as bank carries excess SLR of Rs4.0trn while current capital levels can support growth of Rs7trn.

§ NIM to hinge on credit offtake; asset quality was stable: Adjusted domestic NIM declined by 25-30bps QoQ to 3.47% and bank wants to maintain NIM at these levels for remainder of FY24. We expect NIM (calc.) at 2.94% in FY24 (vs 2.99% in FY23) and NIM upgrade would hinge on MCLR book repricing and visibility of better loan growth. As Q1 is generally soft, slippages rose QoQ 0.5% to 1.15% (7.4% below PLe) while recoveries too were a tad lower. Slippages split was: retail/PL- Rs24bn, agri-Rs23bn, SME-Rs24bn and corporate-Rs9bn. However, in Jul’23, SBI had already recovered Rs16bn from retail (Rs7bn), SME (Rs6bn) and agri (Rs3bn).

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