Buy State Bank of India target Rs 353: Edelweiss Securities

Edelweiss Securities has a buy call on State Bank of India with a target price of Rs 353.

The current market price of State Bank of India is Rs 285.

Time period given by the brokerage is one year when State Bank of India price can reach the defined target.


Investment rationale by the brokerage-
Incremental stress lower; guidance maintained: Slippages were curtailed at <Rs 66bn (1.6 per cent) with nearly 20 per cent from the corporate segment. This, coupled with higher write-offs, drove GNPLs down QoQ to 8.71 per cent (from 9.95 per cent). Further, eight accounts (with exposure Rs 340bn) are in advanced stages of resolution. This, along with curtailed slippages, will keep headline GNPL under check. Given increased coverage, guidance of sub-2 per cent seems reasonable. Key trends determining credit cost will be NCLT recovery and power sector resolution (possible write-back of Rs 60bn).

Business momentum perking up; best placed to catch opportunities: SBI clocked steady improvement in operating metrics (domestic loan grew >15 per cent, better NIM). Armed with a strong franchise and slackened competition, SBI aims to build on business momentum with focus on better-rated corporate. That said, higher opex (pension & wage revision) and softer fee restricted core profitability. We believe improving growth with steady/improving NIM will boost revenue momentum.

Outlook and valuation- better positioned; maintain ‘Buy’: SBI is better positioned to capture emerging opportunities amidst slackened competition. Further, value in non-banking subsidiaries will be more stable and scalable. Ascribing Rs 80/share to subsidiaries, the stock trades at 0.8x FY20E P/BV.