State Bank of India - Q2FY21 Result Update - ICICI Direct
SBI reported a healthy operational performance with NII surging 14.6% YoY on the back of sequential improvement in margins. Other income declined by 29% YoY and 10.2% QoQ as a result of higher base due to stake sale. Cost to income ratio for the bank increased by 514 bps QoQ to 55.16% led by one off wage provision of ~Rs. 1600 crore. Provisions for the quarter declined by 19% QoQ and 23% YoY owing to lesser Covid provisions. Excluding provision related to one fraud account, provision came steady. Thus, net profit for Q2FY21 jumped by 51.9% YoY to Rs. 4575 crore boosted by healthy NII and lower provisions.
Valuation & Outlook
Clarification on overall stress at 2.5% of loans and Covid-19 provisions building up, the hangover of uncertainty is abating. Customers (retail loans) being government employees/ salaried, retail portfolio appears more resilient in these challenging times. NII growth and moderating provisions augur well for the bank's earnings. We upgrade our PAT estimates by 24% / 11% for FY21E/ 22E to Rs. 17027/25818 crore. We expect RoA of 0.6% and RoE at 9.9% by FY22E. However, we remain watchful on asset quality over the next two quarters. We maintain HOLD with a revised target price of Rs. 235 (Rs. 215 earlier), valuing the stock at ~0.6x FY22E ABV for standalone bank and maintaining subsidiaries value of Rs. 80 post holding company discount.
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