Broking firm, Prabhudas Lilladher has a buy call on the stock of State Bank of India with a price target of Rs 650 on the stock.
Asset quality to remain under control
According to the brokerage, asset quality risks have materially abated. PCR (calc.) is 75% with a clean balance sheet. "While OTR and ECLGS combined contributes 2%, there is 14% cover on the same. These pools are performing in-line with the overall portfolio with no significant deviations. Management expects normalized slippages from this book. Credit quality of the SME book is better than industry with GNPA at 6.5%, while no major slippages are expected from corporate. Aspiration is to keep credit costs below 1%," the brokerage has said.
Optimistic on credit outlook
The brokerage recently interacted with the management to understand credit outlook, changes in credit appraisal, asset quality view and opex trajectory. "The bank is optimistic on loan growth, as improving economic activity and tight liquidity may support its credit offtake. New proposals and unavailed limits within corporate total to Rs6trn, while retail momentum might continue. With cash flows normalizing for SMEs, the ECLGS/OTR pools are also performing well. Underwriting has strengthened with induction of non-sales personnel in credit appraisal and robust credit research across 36 sectors. Asset quality may remain under control and target is to keep credit costs below 1%. While we slightly tweak our estimates, we expect a core PAT CAGR of 20% over FY22-25E. Retaining the multiple at 1.4x, we roll forward to core Sep'24 ABV, raising SOTP based target price from Rs 620 to Rs 650. Maintain 'BUY' in the stock," Prabhudas Lilladher has said.
Opex growth to remain controlled
According to Prabhudas Lilladher, pension and gratuity provisions might decrease with rise in discount rates. Annually 10,000-12,000 employees usually retire of which 75-80% are replaced that too at a much lower cost with the balance business being sourced through technology. Cost differential between old and new employees is substantial with salaries being 2-2.5x to that of new joinees. Nov'22 onwards employee cost may increase by 10-15%, owing to bi-partite wage settlement. Overall opex may not change significantly but the quantum rise could be lower or equivalent to inflation.