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ICICI Securities Report
Driven by strong treasury contribution (Rs 38 billion) and controlled non-staff opex, State Bank of India has reported higher than estimated Q1 FY24 headline profit after tax at Rs 168.8 billion with stable return on asset at 1.22% (versus 1.23% QoQ), though result internals were soft.
Growth has tapered to 1.1% QoQ (and 15% YoY versus 17-21% run-rate) while global net interest margin saw 27 basis points QoQ compression to 3.33% (which was weaker even adjusted for lumpy interest on IT refund in base quarter).
Both gross and net slippages increased sharply on QoQ basis, mainly due to seasonality and unique slippages recognition policy. SBI has hinted at lower domestic NIMs YoY for FY24, though sounded confident of ~15% YoY credit growth and improving slippages in coming quarters.
We acknowledge some seasonality in NIMs and asset quality performance at SBI for every first quarter of the financial year. We model 14-15% compound annual growth rate in loans for FY24E-FY25E.
Despite modelling improving loan-to-deposit ratio, we expect ~5/10 bps decline YoY in calculated NIMs for FY24E/FY25E.
We also bake in higher treasury contribution for FY24E. We estimate net slippages to be comfortable at 0.3/0.5% for FY24E/25E driving benign credit costs.
Overall, we see the bank delivering ~1.0/0.9% return on asset and strong ~17/16% return on equity for FY24E/FY25E, respectively.
Maintain 'Buy' with an unchanged target price of Rs 730 per share, valuing the stock at ~1.3 times FY25E core banking business and Rs 202 per share of subsidiaries.
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