Focus on Technology aided Market Share Growth – SBI

Update on Indian Equity Market:
On Tuesday, markets ended lower with Nifty closing 120 points down at 15,632. ASIANPAINT (+5.4%), ULTRACEMCO (+1.8%), HINDUNILVR (+1.0%) were the top gainers on the index while HINDALCO (-3.7%), INDUSINDBK (-3.2%) and TATASTEEL (-2.7%) were the top losers for the day. Among the sectoral indices, FMCG (+0.1%) was the sole gainer, while MEDIA (-2.6%), REALTY (-2.5%) and METAL (-2.3%) were top losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman of SBI with ET NOW on 16th July 2021:

• SBI’s growth is directly linked with India’s growth story. The Bank expects its loan book to grow across both working capital and term loan segments at 8% if the Indian economy grows around the same rate.
  The 2nd wave impact has been reduced now. The activities are recovering to March-21 i.e pre- 2nd wave levels due to a dip in cases and increased vaccination exposure, the commodity cycle and consumer demand are now back to March-21 levels.
• The Bank was not caught off guard during the 2nd wave as it was during the first wave. It was well prepared and did not face headwinds during the second wave.
• RBI’s timely intervention to address resolutions of NPAs has helped the bank manage its asset quality with regards to exposure to the MSME sector and has provided much-needed relief for the sector.
  SBI is a proxy for the Indian economy.
• The NPA cycle, both net and gross, has reached a 5 year low, so the growth in the Indian Economy in the longer term and the bank’s capabilities to manage its loan book indicate a similar trajectory going ahead.
• Listing of SBI MF is on the cards, the discussion is ongoing with the JV Partner. They are awaiting a unanimous decision and expect some movement in the upcoming quarters.
• Fintech Space dominated by Paytm is demonstrating attractiveness to premium valuations, however, the Bank wants to focus its fintech segment SBI YONO to create long-term value for its stakeholders and doesn’t plan to list it for an IPO.
• Fintech players operate in a niche segment, who don’t offer full-scale banking operations, so it’s an excellent opportunity for the bank to collaborate with such players to expand its growth drivers.
• The Flight to Safety approach in uncertain times has helped large banks grow their liabilities and by extension, their loan book during the pandemic, the bank expects further consolidation of market share among top players.
• The Capex and Credit Cycle recovery is evidential in the Cement, Iron and Steel, and the FMCG sectors with some capacity expansion on the cards.

Asset Multiplier Comments:

• SBI, India’s largest bank is a proxy to India’s growth story. The bank is well-positioned to take benefit of all the disruptions and growth possibilities offered by the pandemic.
• SBI has separated itself from other PSU banks that are riddled with operational inefficiencies and rigid cost structures, making it an attractive proposition in the banking sector.

Consensus Estimates (Source: market screener website):

• The closing price of SBI was ₹ 421/- as of 20-July-2021. It traded at 1.4x/1.2x/1x the Book Value per Share (BVPS) estimate of ₹ 309/ ₹ 354/ ₹ 397 for FY22E/23E/24E respectively.
• The consensus price target is ₹ 515/- which trades at 1.3x the BVPS estimate for FY24E of ₹ 397/-

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