SBI’s 3QFY21 profit of Rs52bn (-7% YoY) was ahead of estimates, led by lower credit costs. Key positive was lower slippages (pro forma, not annualised at 0.8% for 2Q-3Q) that were lower than peers, manageable restructuring of 0.8% of loans & collections of 97%. PPOP was a tad lower due to higher staff costs, but provision beat covered for this. Better asset quality drives our sharp earnings upgrade and we also raise our PT to Rs 480 (from Rs 340). Maintain Buy.
Strong deposit franchise will aid growth. SBI benefits from a strong deposit franchise that will support market share gains, based on its low funding costs. During 3Q, its Casa deposits grew by 15% YOY with Casa ratio at 45% of deposits. Lower funding costs help to offer lower lending rates vs. even the larger private banks — this can help gain share in the better quality corporate loans.
Slight miss on op. profit led by higher employee costs. NII grew 4% YoY with loan growth tracking slightly above system loan growth at 7% YoY, mainly led by strong growth in retail (15% YoY).
Raise earnings & price target; maintain Buy. On the back of lower credit costs, we raise FY22-23 earnings forecasts by +30% and expect SBI to achieve ROE of 11%. SBI is a preferred recovery play in India and we maintain our Buy rating with a revised price target of Rs 480 (Rs 340 earlier) based on 1.2x Dec-22 adjusted PB.
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