Result Analysis – State Bank of India

  Result Highlight: 

• SBI Net Interest Income in Q2FY22 grew by 10.7% YoY to Rs. 31183 crores which was above the estimates of Rs. 28751 Crore.

• Net Profit was highest ever, grew by 66.7% YoY at Rs. 7627 Crore despite of exceptional item of fully provided Rs 7,418 crores due to change in family pension rules, even as regulator granted dispensation to amortise in 5 years.

• GNPA and NNPA declined to 4.90% and 1.52%, from 5.32% and 1.77%, respectively on QoQ basis

• Provision coverage ratio improved to 87.68% from 85.93% at June’21

• Total Deposits grew at 9.8% YoY, out of which Current Account Deposit grew by 19.70% YoY, while Saving Bank Deposits grew by 10.55% YoY.

• Total domestic Advances grew 5.8% YoY in Q1FY22, Home loan, which constitutes 23% of Bank’s domestic advances, has grown by 10.98% YoY.

• Slippages Ratio for Q2FY22 has declined to 0.66% from 2.4% in Q1FY22.

• Cost to Income Ratio at 54.10% during Q2FY22 is lower by 106 bps YoY.

• Return on Assets (RoA) increased by 18 bps YoY to 0.61% in Q2FY22 against 0.57% in Q1FY22.

• Capital Adequacy Ratio (CAR) has declined by 31 bps QoQ to 13.35% as on Jun 2021. Adjusted for H1FY22 Profit, CAR would increase by 61 bps to 13.96%

• Restructured Loan of worth Rs. 30,312 Crore under One Time Restructuring 1.0 and 2.0. which represent 1.2% of loan book.

Management Commentary: Chairman – Dinesh Khara

Credit Growth:

• On Corporate Loan side we saw a degrowth of 3.9% YoY due deleveraging by corporates.

• Credit growth will be the function of economy and we hopeful to achieve 10% growth

• Expected credit growth in Steel, Iron and Oil companies. All metal sectors see up stick and capacity addition in expected.

• Retain Loan growth which was 15.17% YoY in Q2 will continue to grow at faster rate and for corporate we decent demand this month and if this trend continue, we should see decent growth. Rs. 460000 loans are already sanctioned.

• Have concern in home loan which we could pull back, In SME there had also some concern but had repercussion to pull back or restructure as per the revised guidelines and accounts which are restructured started performing well

Asset Quality:

• In Q1 we had slippages on retail segment and we were able to pull back them, which is the reason for much lower slippages and also on account of improved Collection efficiency which stands at 95%

• There no major concern related to asset quality as Underwriting has improved significantly and collection machinery has activated very well on ground level, our collection calls went multifold to 10X

• Have made 100% Provision for SREI group, 30 accounts with Rs. 22000 Cr. Outstanding identified for transfer to NARCL over time

• Have some old provision for telecom but no new provision. Had about Rs. 4000 Crore of write back on account of DHFL

• We bought Gross NPA below 5 and Net NPA below 1.7. Going forward we should be in position of improving of asset quality

Other:

• Raised Rs. 6000 AT -1 Bonds in October including this Capital Adequacy ratio would be 14.2%. Capital will not be the constrained for bank.

• Our subsidiaries have leadership in their respecting segment and we will continue to nurture these subsidiaries Will consider listing General Insurance Business in 2- 3 Years.

View:

SBI Reported strong growth in Net Interest Income and Net Profit. Loan growth of the banks was above the Estimates of 5%-6%. It managed its asset quality well with improved Gross and Net NPAs on YoY as well as on QoQ basis and slippages ratio at just 0.66%. Bank has seen a decent pull back or recoveries of Rs. 7407 Crore in Q2. It is Well provided for Stressed Book with PCR at 87.68%. Given the bank’s strong guidance for credit growth at 10% we expect it will do well in coming quarters on corporate side too. Considering strong numbers from bank and positive commentary from the management we recommend to buy the stock. Thus, Investors can buy the stock at CMP of Rs. 531 for the target price of Rs.640 with 12 months’ time frame.

Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014

Elite Wealth Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only information in making their investment decision and must exercise their own judgment before making any investment decision.
For analyst certification and other important disclosures, see the Disclosure Appendix, or go to www.elitewealth.in. Analysts employed by Elite Wealth Limited are registered/qualified as research analysts with SEBI in India.( SEBI Registration No.: INH100002300)
Disclosure Appendix
Analyst Certification (For Reports)
Israil Khan, Elite Wealth Limited, suhail@elitewealth.in
The analyst(s) certify that all of the views expressed in this report accurately reflect my/our personal views about the subject company or companies and its or their securities. I/We also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Elite Wealth Limited.
As to each individual report referenced herein, the primary research analyst(s) named within the report individually certify, with respect to each security or issuer that the analyst covered in the report, that:
(1) all of the views expressed in the report accurately reflect his or her personal views about any and all of the subject securities or issuers; and
(2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in the report.
For individual analyst certifications, please refer to the disclosure section at the end of the attached individual notes.
Research Excerpts
This note may include excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please visit www.elitewealth.in.
Company-Specific Disclosures
Important disclosures, including price charts, are available and all Elite Wealth Limited covered companies by visiting https://www.elitewealth.in, or emailing research@elitestock.com with your request. Elite Wealth Limited may screen companies based on Strategy, Technical, and Quantitative Research. For important disclosures for these companies, please e-mail research@elitestock.com.
Options related research:
If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the risk disclosure documents, please contact your Broker’s Representative or visit the OCC’s website at https://www.elitewealth.in
Other Disclosures
All research reports made available to clients are simultaneously available on our client websites. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your respective broker’s sales person.
Ownership and material conflicts of interest Disclosure
Elite Wealth Limited policy prohibits its analysts, professionals reporting to analysts from owning securities of any company in the analyst’s area of coverage. Analyst compensation: Analysts are salary based permanent employees of Elite Wealth Limited. Analyst as officer or director: Elite Wealth Limited policy prohibits its analysts, persons reporting to analysts from serving as an officer, director, board member or employee of any company in the analyst’s area of coverage.
Country Specific Disclosures
India – For private circulation only, not for sale.
Legal Entities Disclosures
Mr. Ravinder Parkash Seth is the Managing Director of Elite Wealth Ltd (EWL, henceforth), having its registered office at Casa Picasso, Golf Course Extension, Near Rajesh Pilot Chowk, Radha Swami, Sector-61, Gurgaon-122001 Haryana, is a SEBI registered Research Analyst and is regulated by Securities and Exchange Board of India. Telephone:011-43035555, Facsimile: 011-22795783 and Website: www.elitewealth.in
EWL discloses all material information about itself including its business activity, disciplinary history, the terms and conditions on which it offers research report, details of associates and such other information as is necessary to take an investment decision, including the following:
1. Reports
a) EWL or his associate or his relative has no financial interest in the subject company and the nature of such financial interest;
(b) EWL or its associates or relatives, have no actual/beneficial ownership of one per cent. or more in the securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance;
(c) EWL or its associate or his relative, has no other material conflict of interest at the time of publication of the research report or at the time of public appearance;
2. Compensation
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) EWL or its associates have not managed or co-managed public offering of securities for the subject company in the past twelve months;
(c) EWL or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(d) EWL or its associates have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(e) EWL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
3 In respect of Public Appearances
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) The subject company is not now or never a client during twelve months preceding the date of distribution of the research report and the types of services provided by EWL