Buy SBI at CMP for short term perspective target of Rs.319

SBI has given an improved performance in comparison to other PSU banks. SBI’s Q4FY15 results were above estimates as the earnings grew by 23 per cent y-o-y (28.6 per cent q-o-q) to Rs.3,740 crore whereas asset quality improved sharply as gross non-performing assets and net non-performing assets reduced by 65 bps and 68 bps respectively to 4.25 per cent and 2.12 per cent. 

NII Net interest income grew by 14 per cent y-o-y (6.8 per cent q-o-q) led by stable net interest margins, even as advances grew at a slower pace. PCR improved to 69.1 per cent from 63.6 per cent in Q3FY15. 

Though slippages during the year were below expectations, fresh restructuring came as a negative surprise. We expect earnings to grow at a CAGR growth of 19 per cent over FY15-17E led by 13 per cent growth in advances over the period. 

We remain positive from a long-term prospective and recommend a ‘Buy’ rating and a sum-of-the-parts (SOTP) based target price of Rs.319 (1.9x FY17E ABV).