State Bank Of India (SBI)- ICICI Securities Fundamental Top Picks for 2015

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State Bank Of India (STABAN) Target Price: | 374 (22% upside)
• SBI is the largest bank in the country both by asset size (| 19 lakh crore
balance sheet size) and profitability (~| 12000 crore). SBI has managed
~16-17% market share in both deposits and advances consistently. Going
ahead, we expect SBI to maintain its market share and grow in line with
industry with deposit CAGR of 15.5% to | 1860692 crore and credit CAGR
of 15.2% to | 1604457 crore in FY14-16E. For FY15, growth is expected to
be relatively subdued
• In 1993, retail deposit funds ~80% of total deposit, which is stable in
nature while its bulk deposit proportion is sub 10%. CASA stood at
42.79% for the bank. Hence, liquidity risk and interest rate risks remain
limited for SBI. Hence, it is maintaining one of the highest domestic NIM
among PSU banks at ~3.5%. A strong operational performance led by NII
enables SBI to cover up for higher provisioning & post decent profitability
• GNPA stood at | 60712 crore (4.9% of credit) while its standard
restructured assets are manageable at 3.5% (| 43962 crore) as on
September 2014. Considering the large size of SBI, its exposure to
stressed sectors is relatively low. Overall, the bank has relatively stable
asset quality compared to other PSU banks with stressed asset (NNPA +
RA) proportion of 6.2% as on Q2FY15 compared to ~10% for other PSU
banks. We expect GNPA and NNPA ratio at 4.7% and 2.5%, respectively,
by FY16E.
• We expect the bank to post healthy 18% CAGR in profit to | 15908 crore,
over FY14-16E with return ratios of RoA at 0.7-0.8% and RoE of 11-12%+.
We continue to recommend SBI led by comfort on scale and relatively
lower headwinds on the asset quality
• We have a target price of | 383, valuing the core book at 2.5x FY16E
standalone ABV and adding | 45 for associate banks & subsidiaries (life &
general insurance, AMC, etc)