Wednesday, September 24, 2014

#SBI approves stock split of one share into 10 shares

Fresh impairments (gross slippage + new restructuring) have been on declining trajectory during last five consecutive quarters, which provides comfort. We also opine that asset quality pain is likely to ebb, going forward. Its liability franchise continues to be robust which has helped SBI to contain its funding costs. However, weak sanctions & higher repayment might put pressure on the loan growth. Although there is a systemic pressure on NIM as bargaining power is shifting in favor of borrowers as well as shift in the loan mix towards lower yielding retail assets, SBI can maintain its NIM at present levels as pressure of income de-recognition due to loan impairments is lower, in our view.

We believe, SBI is a better play amongst PSU banks in likely improvement in the macro-economic environment, with peaking NPL cycle, comfortable capital, well managed opex and reasonable valuation. Stock trades at reasonable valuation (1.2x its FY16E ABV) after stripping the value of its subsidiaries. We retain BUY rating on the stock with revised TP of Rs.3101 (Rs.2970 earlier) based on SOTP methodology where core business is valued at Rs.2228 (1.6x FY16E ABV) and subsidiaries are valued at Rs.873 (post 20% holding company discount).

Stock Analysis by Saday Sinha, banking analyst, Kotak Securities