SBI Q3 Results Review - Upside Risks To Core PPoP In FY25 Due To Lower Staff Cost: Prabhudas Lilladher

Prabhudas Lilladher Report

State Bank of India reported a good quarter; while net interest income beat due to better net interest margin and loan growth. Adjusted for one-time impact (Rs 71 billion) of pension liability and benefit of exgratia, core pre-provision operating profit/profit after tax was 4.8%/7.0% ahead of our estimate.

Credit growth at 5.2% QoQ was best-in-class. While bank guided for 14-15% loan growth, we expect SBI to grow at 13% compound annual growth rate over FY24-26E due to tight system liquidity. We have cut loan growth by 1% for all coverage banks except SBI, given upside risks as the following levers may support credit offtake viz.

1. low  loan-to-deposit ratio at 74%,

2. adequate liquidity coverage ratio at 131% and

3. sufficient CET-1 at 11% (post RBI norms on re-classification of investments).

Staff cost for FY24E may be Rs 773 billion (+35% YoY) due to wage revision impact of Rs 180 billion. There are downside risks to our staff cost estimate for FY25E at Rs 800 billion (+4% YoY).

We remain positive on SBI and keep our multiple unchanged at 1.4 times on September-25E adjusted book value and maintain SOTP based target price at Rs 770. Retain ‘Buy’.

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