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Systematix Research Report
State Bank of India reported Q1 FY24 earnings of Rs 169 billion, up 178% YoY, 1% QoQ with margins compressing more than street expectations and contrary to feedback received from management at the end of Q4 FY23.
Loan growth of 15% YoY/1% QoQ was led by retail, agri and small and medium enterprise while domestic corporate book remained flat QoQ. The bank has a cautious outlook on global macros- reflected in the overseas book, 15% of portfolio, declining 2% QoQ.
Deposit growth was 12% YoY, 2.4% QoQ with high-cost term deposits increasing 16.6% YoY,4% QoQ. Current accounts, coming off from the strong Q4, reflected the seasonal weakness and declined 8% QoQ.
SBI's Cost of deposits increased 56 basis points QoQ resulting in net interest margins, excluding one-offs, declining 20 bps QoQ. Trading gains were strong at Rs 38 billion versus gain of Rs 18 billion in Q4 FY23 and loss of Rs 65 billion in Q1 FY23.
Higher trading gains could not offset the seasonal dip in cross sell activities sequentially, resulting in overall net income for the bank declining 6% QoQ/ up 25% YoY.
Operating expenses, while elevated, registered a sequential decline with opex to average assets at 1.9% versus 2.2% in Q4 FY23 and 1.7% in Q1 FY23. While operating profit increased 98% YoY, 3% QoQ, core operating profit (excluding of trading gains) increased a modest 11% YoY, -6% QoQ.
SBI's gross slippage rate, as % of opening standard assets, at 99 bps was lower than 150 bps in Q1 FY23 resulting in gross/net non-performing asset at 2.8%/0.7% versus 2.8%/0.7% in Q4 FY23 and 3.9%/1.0% in Q1 FY23.
Overall, the return ratios in Q1 FY24 were strong with return on asset at 1.2% and return on equity at 20.1%.
With this note, we resume coverage of the stock with a 'Buy' rating and a SOTP based target price of Rs 670 valuing the standalone bank at 1.2 times FY25E adjusted book value pre share for average FY24/25E return on equity of 17%.
We assign a value of Rs 178 per share for its investment in the subsidiary companies.
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