Stock To Buy: Motilal Oswal Bets On This Well Poised Large Cap Banking Stock For 35% Returns

Stock Outlook - CMP, 52 Week Low & High, Target Price, Returns

The Current Market Price (CMP) of the SBI is Rs 444.60/share, reporting a decline of 0.28% from the previous close. The previous week the stock has slid nearly 3.85%, giving negative returns. However, the stock has also given a good positive return over the last 1year, 3 years and 5 years, respectively. It has given 3.78% in 1 year, 28.67% in 3 years, and 57.07% in 5 years.

Considering the CMP of SBI, it is trading roughly 11.01% above its 52-week low of Rs 400.50/share level, on the side, it trading nearly 23.48% below its 52-week high of Rs 549/share level. As the brokerage's given the targeted price of Rs 600/share and the CMP, the stock could jump nearly 35% in near future.

Loan growth gaining traction; utilization levels improving

SBI has demonstrated a sharp recovery in loan growth at ~12% during 2HFY22, offsetting the softness in 1HFY22. Utilization levels improved ~860bp to 31% in the wholesale book while retail growth remained steady at ~15% YoY. Within Retail Loans - Home Loans / Xpress Credit grew ~11% / 29% YoY, respectively. The total size of Xpress Credit thus increased to ~Rs 2.5t with the segment having best-in-class GNPL ratio of 0.6%. We estimate loan growth to sustain at 12% CAGR over FY22-24 driven by steady trends in retail and further recovery in corporate loans.

Deposit share steady; high mix of floating loans to support NII growth

SBI's deposits grew 10% YoY to Rs 40.5t in FY22 and remained an unbeatable deposit machine with a deposit market share of 24.6%. SBI has a high mix of MCLR/Floating Rate/EBLR loans (75% of total), which puts it in a favourable position to support margins in a rising rate environment. This coupled with a gradual increase in CD ratio will support 12% CAGR in NII growth over FY22-24E.

Corporate profitability jumps ~5x after achieving breakeven in FY21

The corporate segment reported a strong uptick in PBT, which grew ~5x YoY to Rs 270b, underscoring the structural improvement in corporate business. The segment thus contributed ~51% of total profits in FY22 v/s 17% in FY21. Treasury performance, however, was under pressure as SBI reported a decline of 12% YoY in PBT led by hardening of bond yields. Retail PBT grew 33% YoY and contributed ~24% to the total profits mainly supported by lower provisions.

Building strong digital capability; YONO emerging as a key growth driver

SBI has established leadership across Debit Card spends, POS terminals, ATMs, and mobile banking transactions (both in volume and value terms). Management also recently appointed Mr. Nitin Chugh as the Deputy MD and Head of Digital Banking to spearhead the digital initiatives. YONO has witnessed ~112m downloads and has ~48m registered users with average daily logins of ~16.6m. SBI sanctioned 1.14m digital loans worth Rs 211b and overall, 36% of its retail asset accounts were opened through YONO in FY22. On the liability side, ~9.9m savings accounts were opened in FY22 with 63% being opened through YONO. The bank also introduced two new End-to-End Digital Loan Journeys: a) pre-approved 2W loan, and b) preapproved business loan, with loans worth Rs 219b being extended digitally in FY22.

Benign slippage trajectory to drive further reduction in Net NPAs

SBI's continued focus on improving underwriting has manifested in controlled slippages (1%) and negligible SMA book (13bp). NNPA ratio thus dropped to 1% in FY22 while PCR increased to 75% (85% on corporate book). Higher provisions on stressed accounts (100% on SREI and Future Group) placed SBI well while high AUCA book at Rs 1.73t with recoveries in the 4-11% range will aid recoveries and limit the overall provisioning requirement. We thus estimate GNPA/NNPA to moderate to 2.9%/0.6% by FY24E, respectively.

The strong FY22 momentum to continue, Suggests buy

SBI has delivered a strong FY22 propelled by steady business/revenue growth and controlled provisions. Management expects the momentum to remain healthy as utilization levels improve, while Retail growth is likely to remain steady. A higher mix of floating loans and CASA mix will support margin in a rising interest rate environment. Asset quality performance has been strong and the outlook remains healthy as restructured book remains in control at 1.1%, while the SMA pool has declined further to 13bp of loans. We conservatively estimate credit cost to moderate to 0.9%, enabling 28% earnings CAGR over FY22-24. We thus expect SBI to deliver an RoA/RoE of 0.9%/16.7% in FY24, respectively. SBI remains our top BUY in the sector with a Target Price of Rs 600 (premised on 1.2x FY24E ABV + INR195 from subsidiaries).