Despite system-beating credit growth, SBI missed PAT at Rs61 crore (estimate: Rs85 crore) mainly due to MTM hitting investments of Rs65 crore. This was further compounded by a slight decline in margins and lower bad debt collections. We believe that a smoother rise in G-sec yields on an incremental basis (protected to 7.45% yield) and an opex advantage (due to lower pension/separate subsidiary for back-end work) should help the bank in 9MFY23 to report healthy profitability. SBI also reported strong loan growth of 16% yoy/3% qoq, but it was mainly led by strong growth in the low-margin foreign book, which mainly pushed margins down 10 basis points qoq to 3%. However, we believe better LDR and asset repricing should support margin growth, which coupled with lower operating expenses should result in a healthy 20% core earnings CAGR over FY22-25E. Q1 gross slippages were seasonally higher at Rs101bn/1.6% of loans, picking up the pace of the sharp slowdown in 3Q NPAs to 3.9%. However, the restructured pool was reduced to 1% of the loans. Allowing for higher Treasury losses, we've cut our FY23-25E earnings estimates by 9-3%, but we're still reporting a decade-high 14-17% RoE, excluding stock dilution.
Outlook
SBI has come a long way and is now much
better positioned to deliver sustained profitable growth but is still trading
at cheap valuations (1x FY24E ABV). Maintain Buy/OW in EAP with TP of Rs640 and
value core bank at 1.3x June FY24E ABV and subs/investments at Rs207. SBI
remains one of our favorite large-cap stocks after ICICI Bank.
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