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Credit Rating: -/BBB/-
State Bank of India
- Sector: Financial Services
- Sub Sector: Banks
- Country: India
- Bond: SBIIN 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.23%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): -/BBB/-
Detailed Information
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Fundamental View
AS OF 08 Jun 2023- State Bank of India (SBI) is the largest state-owned bank in India and is in some respects the country’s flagship bank. Given the bank’s close government links and systemic importance, government support for SBI is very strong.
- It is rated Baa3(sta)/BBB-(sta)/BBB-(sta), the same as India’s sovereign ratings. Fitch revised its outlook to stable from negative while affirming its BBB- rating in June 2022. A sovereign downgrade to HY would be the greatest credit risk, but we assess that risk as low.
- The bank’s capital buffers are relatively low, but we take comfort in the strong government support.
Business Description
AS OF 08 Jun 2023- State Bank of India is the largest commercial bank in India. Its predecessor banks date back to the 19th century. In the early 20th century, they merged to form the Imperial Bank of India which became the State Bank of India after India gained independence in 1947.
- The Government of India remains the largest shareholder with a 56.9% stake. Per the SBI Act, the government's shareholding cannot fall below 55%.
- SBI's merged with its 5 associate banks and Bharatiya Mahila Bank in 2018. The merger catapulted SBI into one of the world's 50 largest banks.
- The bank has 85% of its loans in the domestic market, and has steadily increased its international business too over the past few years with offices across all international business centres.
- It has diversified its operations with well regarded subsidiaries in the areas of fund management, credit cards, insurance, and capital markets.
Risk & Catalysts
AS OF 08 Jun 2023- SBI does not have a strong buffer vs. the regulatory minimum of 8%, but its size, systemic importance and majority government shareholding confer particularly strong government support. But consequentially, any deterioration in the sovereign ratings will also affect the bank’s credit.
- Increasing consolidation in the country’s financial space may narrow the gap between SBI’s market leading position vs its peers.
- The NIM should remain stable in the coming quarters as the bank has room to raise its MCLR and excess statutory liquidity ratio (SLR) reserves to unwind to fund loan growth, which is targeted at 12-14% in FY24.
- Asset quality is trending well, but net slippages should normalize in FY24. Similar to the other PSBs, SBI has a large SME and mid-corporate book which could be impacted disproportionately by higher rates. However, SBI’s asset quality is better than the other PSBs and it is also better run due to the high caliber of its management team.
Key Metrics
AS OF 08 Jun 2023| INR mn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Interest Margin | 2.78% | 2.97% | 3.04% | 3.12% | 3.37% |
| ROA | 0.02% | 0.38% | 0.48% | 0.67% | 0.96% |
| ROE | 0.4% | 6.4% | 8.4% | 11.9% | 16.5% |
| Equity to Assets | 6.0% | 5.9% | 5.6% | 5.6% | 5.9% |
| CET1 Ratio | 9.8% | 10.1% | 10.3% | 10.3% | 10.6% |
| NPA ratio | 7.53% | 6.15% | 4.98% | 3.97% | 2.78% |
| Provisions/Loans | 2.48% | 1.83% | 1.77% | 0.91% | 0.54% |
| PPP ROA | 1.55% | 1.79% | 1.65% | 1.58% | 1.59% |
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CreditSights View
AS OF 19 May 2023SBI is the largest bank in India and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, SBI has the lowest net NPA, a good CASA ratio, a sufficient (though could be higher) CET1 ratio, good operating metrics and business plans, and the best management among the Indian public sector banks. We thus like the SBI name for what it offers. Following a swift deterioration in asset quality post the delta variant outbreak, there has been a sustained improvement and restructured loans are low. FY23 performance was solid with good NIM improvement and loan growth, as well as asset quality. We maintain a M/P reco on the name.
Recommendation Reviewed: May 19, 2023
Recommendation Changed: December 07, 2020
Recommended Issuers
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
Mizuho Financial Group
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Detailed Information
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Fundamental View
AS OF 17 Mar 2023
Hyundai’s automotive sales and profitability gained momentum in 4Q22, and we are constructive on its FY23 outlook for wholesale unit volumes and profitability. A potential concern for Hyundai in 2023 involves customers of its moderately-priced vehicles in North America – Hyundai’s largest market by volume – could be more susceptible to an economic downturn in 2023, which could weigh on sales and profit. In addition, we believe the EV sourcing requirements included in the Inflation Reduction Act (IRA) are more favorable to domestic automakers and could blunt Hyundai’s EV sales growth beginning next year, although management is working to limit the impact.
Business Description
AS OF 17 Mar 2023- Hyundai Motor Co., Ltd. engages in the manufacture and distribution of motor vehicles and parts. It operates through the following business areas: Vehicle, Financial and Others. The Vehicle division offers motor vehicles. The Financial division provides financing, leasing and credit cards. The Other division includes manufacture of railways. The company was founded on December 29, 1967, and is headquartered in Seoul, South Korea.
- Hyundai Capital America benefits from a support agreement with Hyundai Motor (HMC). HCA investor relations confirmed its support (keepwell) agreement contains a fixed charge coverage provision that it views as particularly strong compared to other peers. HCA’s support agreement stipulates that HMC will make cash contributions to HCA if the fixed charge coverage is below 1.1x, allowing the company to mitigate the impact on capital from losses. Key provisions of the support agreement listed in the business update include (1) HMC agrees it, its controlled subsidiaries, and entities subject to joint control, will own 100% of HCA, (2) HMC will cause HCA and its subsidiaries to maintain positive consolidated tangible net worth, (3) HMC will take all necessary actions to ensure HCA maintains a minimum Fixed Charge Coverage of 1.1x, and (4) Third-party enforceability rights.
Risk & Catalysts
AS OF 17 Mar 2023- Management targets consolidated revenue growth of 10.5% to 11.5% in FY23, driven by higher wholesale volumes and an increase in average selling prices related to improving mix. Its FY23 consolidated operating margin target of 6.5% to 7.5% compares to 6.9% in FY23 and should benefit from high plant capacity utilization (96.8% in 4Q22) and mix. At the same time, management called out expected margin headwinds including limited global demand growth, sales incentive normalization, and market uncertainties such as currency and interest rate hikes.
- We estimate the combination of revenue growth and low end of its operating margin target would yield profit growth in FY23 in the mid-single-digit range. The increase in margin dilutive eco-friendly vehicle sales from 5% of global wholesales units in FY22 to 8% in FY23 is another factor that could weigh on its consolidated margins in FY23, especially considering its U.S. EV sales will likely not qualify for consumer tax credits based on our current understanding of the Inflation Reduction Act.
Key Metrics
AS OF 17 Mar 2023| KRW bn | FY18 | FY19 | FY20 | FY21 | FY22 |
|---|---|---|---|---|---|
| Revenue | 75,265 | 82,487 | 80,577 | 94,143 | 113,718 |
| EBIT | 1,467 | 3,161 | 890 | 5,459 | 9,464 |
| EBIT Margin | 1.9% | 3.8% | 1.1% | 5.8% | 8.3% |
| EBITDA | 5,228 | 7,173 | 5,272 | 10,216 | 14,547 |
| EBITDA Margin | 6.9% | 8.7% | 6.5% | 10.9% | 12.8% |
| Total Liquidity | 17,050 | 15,975 | 17,082 | 19,745 | 26,639 |
| Net Debt | (8,350) | (6,749) | (4,453) | (5,202) | (11,035) |
| Total Debt | 6,995 | 7,628 | 10,920 | 12,569 | 12,940 |
| Gross Leverage | 1.3x | 1.1x | 2.1x | 1.2x | 0.9x |
| Net Leverage | -1.6x | -0.9x | -0.8x | -0.5x | -0.8x |
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CreditSights View
AS OF 21 Jun 2023Our Outperform recommendation on Hyundai notes is based on relative value, expectations of growing market share in developed markets, its innovative EV product offerings that we believe should fuel further share gains, solid free cash flow generation, and resilient automotive profit margins. Hyundai targets increased light vehicle wholesales in 2023. While vehicle affordability concerns are expected to weigh on light vehicle demand in 2023, we believe Hyundai’s value-oriented light vehicle offerings could be somewhat insulated from affordability concerns and may benefit from a customer trade down effect. Hyundai and Kia are independent automakers that are aligned through cross-ownership, common governance structures and chairman, and joint ownership of captive finance subsidiaries.
Recommendation Reviewed: June 21, 2023
Recommendation Changed: January 13, 2023
Recommended Issuers
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
Bond:
SBIIN 4.875 28
Credit Rating:
-/BBB/-