Q2FY2020 Result Update| banking

Oct 30, 2019

State Bank of India BUY

CMP `280
Healthy Operating Performance Target Price `371
Particulars (` cr) Q2FY20 Q1FY20 % chg (qoq) Q2FY19 % chg (yoy)
Investment Period 12 Months
NII 24,600 22,939 7.2 20,906 17.7
Pre-prov. profit 18,198 13,246 37.4 13,905 30.9
PAT 3,011 2,312 30.2 945 218.7 Stock Info
Source: Company Sector Banking
For Q2FY2020, SBI Bank reported a very healthy set of numbers with PAT at Market Cap (` cr) 2,50,355
`3,011cr aided by treasury gains and proceeds from 4.5% stake sale in SBI Life Beta 1.4
(Rs3,515cr). Other key positives are (a) improvement in asset quality, (b) increase 52 Week High / Low 373/244
in NIM, (3) continuing upward trend of PCR. Further, SBI plans to monetize its Avg. Daily Volume 23,37,456
credit card business which will unlock value and help to shore up CAR Face Value (`) 1
Asset quality improved; slippages could pop up in next two quarters: During the BSE Sensex 39,831
quarter, the key monitorable was slippages of `9,126cr, which is lower than Nifty 11,786
expected. GNPA/NPA ratios improved 34bps/28bps qoq to 7.2%/2.8%. The Reuters Code SBI.BO
bank’s total stressed portfolio (SMA book + standard accounts where the ICA has Bloomberg Code SBIN.IN
been signed - `26,134cr), declined by 16bps to 1.22% of advances. Bank has
used one time gain from stake sale of SBI Life, to shore up the provision on a
certain asset. Calculated PCR jumped by 900bps to 61% yoy and with Tech W/off
PCR at 81.2%. Against stressed HFC (DHFL), bank took 20% provision and 100% Shareholding Pattern (%)
against a stressed power asset. Recent media reported that DHFL forensic audit Promoters 57.1
has found fraud, and if that is true, then SBI might have to take higher provisions.
Nevertheless, asset quality is improving but the recent trend of rating downgrade MF / Banks / Indian Fls 24.1
could add to the slippages for 2 quarters. FII / NRIs / OCBs 10.7
Despite the asset quality improving during the quarter, bank's exposure to telecom
companies, few stressed HFC and Power exposure would be key risks for fresh Indian Public / Others 6.8
slippages
Advances remained flat qoq, up 10% yoy led by retail lending; NIM
improved: The bank’s advances grew by 10% yoy (1% qoq) aided by healthy retail
loan book growth of 19% yoy. The main driver of retail leading was express credit Abs. (%) 3m 1yr 3yr
book, which grew by 42% yoy. Key surprise was an improvement in NIM by Sensex 5.7 16.9 42.9
34bps/21bps yoy/qoq to 3.22%. This was supported by improvement in yield on
advance by 26bps/13bps yoy/qoq and reduction in cost of deposit by 8bps/5bps SBIN (18.4) 4.6 8.6
to 5.02%. CASA ratio remained flat qoq and increased 16bp yoy to 43.7%.
Outlook & Valuation: At the current market price, the bank’s core banking
business (after adjusting the value of subsidiaries) is trading at 0.8x FY2021E
ABV. We believe the strength of liability franchise (CASA – 43.7%), healthy
improvement in performance of the subsidiaries (AMC, Life & General Insurance 3 Year Price Chart
and Credit card business), steady improvement in stressed loan and going
forward quick resolution under IBC would be the key triggers for expansion. We 400
recommend a Buy on the stock with a Target Price of `371. 300
200

Key Financials 100

Y/E March (` cr) FY17 FY18 FY19 FY20E FY21E 0

Mar-17

Mar-18

Mar-19
Nov-16

Nov-17

Nov-18
Jul-17

Jul-18

Jul-19

NII 61,860 74,854 88,349 97,080 1,12,326

% chg 8 21 18 10 16
Net profit 10,484 (6,547) 862 12,353 29,904
% chg 5 (162) (113) 1,333 142 Source: Company
NIM (%) 2.6 2.6 2.7 2.7 2.9
EPS (`) 11.7 (7.3) 1.0 13.8 33.5
P/E (x) 23.9 (38.2) 290.3 20.3 8.4 Jaikishan Parmar
P/ABV (x) 1.5 1.4 1.2 1.1 1.0
Research Analyst
RoA (%) 0.4 (0.2) 0.0 0.3 0.7
022 – 39357600 Ext: 6810
RoE (%) 6.3 (3.2) 0.4 5.5 12.2
Jaikishan.parmar@angelbroking.com
Source: Company, CMP as on 29/10/2019, Valuation done closing price of 29/10/2019

Please refer to important disclosures at the end of this report 1

 STATE BANK OF INDIA | 2QFY2020 Result Update

Exhibit 1: Quarterly Performance

Particular Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 % chg (qoq) % chg (yoy)
Interest Earned 55,941 58,813 58,793 62,277 62,985 62,638 64,312 3 9
Interest Exp 35,967 37,015 37,888 39,586 40,032 39,699 39,712 0 5
NII 19,974 21,798 20,906 22,691 22,954 22,939 24,600 7 18
Other Income 12,495 6,679 9,375 8,035 12,685 8,015 12,023 50 28
Total Income 32,469 28,478 30,281 30,726 35,639 30,954 36,623 18 21
C/I 51 58 54 59 52 57 50 (689.9)bp (377.2)bp
Opex 16,586 16,505 16,376 18,101 18,706 17,708 18,424 4 13
Employees Exp 9,254 9,708 9,696 11,172 10,478 10,918 11,303 4 17
Other expenses 7,332 6,796 6,680 6,929 8,228 6,790 7,122 5 7
Pre-Prov Profit 15,883 11,973 13,905 12,625 16,933 13,246 18,198 37 31
Provisions 28,096 19,228 12,092 6,006 16,502 9,183 13,139 43 9
PBT -12,213 -7,255 1,813 6,619 431 4,063 5,060 25 179
Taxes -4,495 -2,379 868 2,664 -407 1,751 2,048 17 136
PAT -7,718 -4,876 945 3,955 838 2,312 3,011 30 219

Balance Sheet
Deposits 27,06,343 27,47,813 28,07,420 28,30,538 29,11,386 29,48,821 30,33,396 3 8
CA 1,87,907 1,66,155 1,74,076 1,73,081 2,02,134 1,80,864 1,95,350 8 12
SA 9,99,387 10,30,040 10,52,728 10,64,497 10,85,151 11,03,537 11,30,822 2 7
CASA 11,87,294 11,96,195 12,26,804 12,37,578 12,87,285 12,84,401 13,26,172 3 8
CASA% 43.9 43.5 43.7 43.7 44.2 43.6 43.7 16.3bp 2bp
TD 14,12,099 14,57,775 14,83,097 14,98,725 15,26,958 15,66,228 16,12,583 3 9
Foreign Dep 1,06,950 93,842 97,519 94,235 97,143 98,192 94,641 (4) (3)
Investments 10,60,987 10,63,474 10,82,612 10,32,071 9,67,022 9,44,355 9,85,022 4 (9)
Advances 19,34,880 18,75,774 19,57,340 20,47,779 21,85,877 21,34,774 21,46,160 1 10

Margin Performance
Yield on Advances 8.28 8.57 8.43 8.48 8.49 8.56 8.69 13bp 26bp
Cost of Fund 4.71 4.87 4.89 4.94 4.88 4.87 4.85 (2)bp (4)bp
Cost of Deposits 5.30 5.11 5.10 5.09 5.10 5.07 5.02 (5)bp (8)bp
Dom.NIM 2.67 2.95 2.88 2.92 2.95 3.01 3.22 21bp 34bp
Whole NIM 2.50 2.80 2.73 2.76 2.78 2.81 2.90 9bp 17bp
Foreign NIM 1.14 1.47 1.42 1.38 1.32 1.18 1.20 2bp (22)bp

Asset Quality
GNPA 2,23,427 2,12,840 2,05,864 1,87,765 1,72,750 1,68,494 1,61,686 (4) (21)
NPA 1,10,855 99,236 94,810 80,944 65,895 65,624 59,939 (9) (37)
GNPA% 10.9 10.7 10.0 8.7 7.5 7.5 7.2 (34)bp (276)bp
NPA% 5.7 5.3 4.8 4.0 3.0 3.1 2.8 (28)bp (205)bp
PCR 47 51 51 55 60 59 61 196.6bp 983.9bp

Oct 30, 2019 2

 STATE BANK OF INDIA | 2QFY2020 Result Update

Outlook & Valuation: At the current market price, the bank’s core banking
business (after adjusting the value of subsidiaries) is trading at 0.8x FY2021E ABV.
We believe strength of liability franchise (CASA – 43.7%), Healthy improvement in
performance of the subsidiaries (AMC, Life Insurance & Gen Insurance and Credit
card business), steady improvement in stressed loan and going forward quick
resolution under IBC would be the key triggers for expansion. We recommend a
Buy on the stock with a Target Price of `371.

Exhibit 2: SOTP
Valuation Value/share
Particular %
Methodology (`)

SBI (merged banks) 100% FY21 Adj BV-1.1 297

SBI Life 58% M.cap 43
SBI General 70% PE - 25 FY21 9
SBI MF 63% 5% of Latest QAUM 11
UTI MF 19% 4% of Latest QAUM 1
SBI Caps 100% PE - 10 FY21 5
SBI DFHI 72% PE - 10 FY21 1
SBI Cards 74% PE - 20 FY21 19
NSE 10% PE - 15 FY21 3

Holding Discount 18

Fair value per share 371

Source: Company

Oct 30, 2019 3

 STATE BANK OF INDIA | 2QFY2020 Result Update

Income Statement
Y/E March (` cr) FY17 FY18 FY19 FY20E FY21E
Net Interest Income 61,860 74,854 88,349 97,080 1,12,326
- YoY Growth (%) 8 21 18 10 16
Other Income 35,461 44,601 36,775 40,074 44,877
- YoY Growth (%) 27 26 (18) 9 12
Operating Income 97,321 1,19,454 1,25,124 1,37,154 1,57,202
- YoY Growth (%) 14 23 5 10 15
Operating Expenses 46,473 59,943 69,688 74,567 81,633
- YoY Growth (%) 11 29 16 7 9
Pre - Provision Profit 50,848 59,511 55,436 62,587 75,570
- YoY Growth (%) 18 17 (7) 13 21
Prov. & Cont. 35,993 75,039 53,829 42,814 35,697
- YoY Growth (%) 22 108 (28) (20) (17)
Profit Before Tax 14,855 (15,528) 1,607 19,774 39,872
- YoY Growth (%) 8 (205) (110) 1,130 102
Prov. for Taxation 4,371 (8,981) 745 7,420 9,968
- as a % of PBT 29 58 46 38 25
PAT 10,484 (6,547) 862 12,353 29,904
- YoY Growth (%) 5 (162) (113) 1,333 142

Balance Sheet
Y/E March (` cr) FY17 FY18 FY19 FY20E FY21E
Equity 797 892 892 892 892
Reserve & Surplus 1,87,489 2,18,236 2,20,021 2,31,158 2,56,576
Networth 1,88,286 2,19,129 2,20,914 2,32,050 2,57,469
Deposits 20,44,751 27,06,343 29,11,386 31,90,459 35,32,305
- Growth (%) 18 32 8 10 11
Borrowings 3,17,694 3,62,142 4,03,017 2,97,971 3,62,186
Other Liab. & Prov. 1,55,235 1,78,347 1,56,679 2,92,455 2,86,277
Total Liabilities 27,05,966 34,65,960 36,91,996 40,12,936 44,38,237
Cash Balances 1,27,998 1,50,397 1,76,932 1,73,273 1,91,835
Bank Balances 43,974 41,501 45,558 49,992 55,348
Investments 7,65,990 10,60,987 9,67,022 10,51,697 11,36,461
Advances 15,71,078 19,34,880 21,85,877 24,11,425 26,93,061
- Growth (%) 7 23 13 10 12
Fixed Assets 42,919 39,992 39,198 43,013 47,621
Other Assets 1,54,008 2,38,203 2,77,410 2,83,537 3,13,912
Total Assets 27,05,966 34,65,961 36,91,996 40,12,936 44,38,237
- Growth (%) 15 28 7 9 11
Source: Company

Oct 30, 2019 4

 STATE BANK OF INDIA | 2QFY2020 Result Update

Y/E March FY17 FY18 FY19 FY20E FY21E

Profitability ratios (%)
NIMs 2.6 2.6 2.7 2.7 2.9
Cost to Income Ratio 47.8 50.2 55.7 54.4 51.9
RoA 0.4 (0.2) 0.0 0.3 0.7
RoE 6.3 (3.2) 0.4 5.5 12.2
B/S ratios (%)
CASA Ratio 43.5 43.9 44.2 43.8 43.9
Credit/Deposit Ratio 76.8 71.5 75.1 75.6 76.2
Investment/Deposit 37.5 39.2 33.2 33.0 32.2
Asset Quality (%)
Gross NPAs 6.9 10.9 7.5 6.0 4.5
Net NPAs 3.7 5.7 3.0 2.2 1.6
Credit Cost 2.3 3.9 2.5 1.8 1.3
Provision Coverage 46.2 47.5 60.0 63.3 64.4
Per Share Data (`)
EPS 11.7 (7.3) 1.0 13.8 33.5
ABVPS (70% cover.) 183.4 196.4 231.8 249.0 280.8
DPS 2.6 - - 2.1 5.0
Valuation Ratios
PER (x) 23.9 (38.2) 290.3 20.3 8.4
P/ABVPS (x) 1.5 1.4 1.2 1.1 1.0
Dividend Yield (%) 0.9 - - 0.7 1.8
DuPont Analysis FY17 FY18 FY19 FY20E FY21E
NII 2.4 2.4 2.5 2.5 2.7
- Prov 1.4 2.4 1.5 1.1 0.8
Adj NII 1.0 (0.0) 1.0 1.4 1.8
Other Income 1.4 1.4 1.0 1.0 1.1
Total Income 2.4 1.4 2.0 2.4 2.9
Opex 1.8 1.9 1.9 1.9 1.9
PBT 0.6 (0.5) 0.0 0.5 0.9
TAX 0.2 (0.3) 0.0 0.2 0.2
RoA 0.4 (0.2) 0.0 0.3 0.7
Leverage 15.2 15.1 16.3 17.0 17.3
RoE 6.3 (3.2) 0.4 5.5 12.2
Source: Company

Oct 30, 2019 5

 STATE BANK OF INDIA | 2QFY2020 Result Update

Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com

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Disclosure of Interest Statement State Bank of India

1. Financial interest of research analyst or Angel or his Associate or his relative No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives No
3. Served as an officer, director or employee of the company covered under Research No
4. Broking relationship with company covered under Research No

Oct 30, 2019 6

Ratings (Based on expected returns Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
over 12 months investment period): Reduce (-5% to -15%) Sell (< -15)