SBI to outperform over next 2 years: R Srisankar, Prabhudas Lilladher

In a chat with ET Now, R Srisankar, Head-Institutional Equities, Prabhudas Lilladher, says the kind of valuation differential between an Axis, ICICI Bank and an SBI is quite huge. Edited excerpts

What could be the big turnaround story from here for the next two years?

This is not the question of a turnaround story. It is going to be more of consolidation in some of these industries and an outlier coming in terms of stock performance.

In the banking space, valuation-wise, State Bank of India could be a big story which will ultimately turn out to be a banking stock that will get a huge rerating going forward purely due to better performance when compared to peers in the industry. When I say peers in the industry, I am comparing all the PSU banks, plus the growth that it has got, market share gains, qualitative aspects of using technology for better analytics and seeing a result in terms of quantitative aspects in terms of performance and lower slippages when compared to peers. SBI is in a different league altogether and we expect SBI to see a great outperformance over the next 12-24 months.

Where are you on this relative comparison on a one-year basis, on a two-year basis? Which big wholesale franchise will make more money for shareholders?

Look at view on SBI. Why do I say valuations wise? Let us keep HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, Yes Bank on a different side because the valuations of these banks are on a much higher side. Axis trades at two times price to adjusted book for FY18 and if I look at ICICI Bank, it is around 1.35. If I look at SBI, it is at one time. So the kind of valuation differential between an Axis, ICICI Bank and an SBI is quite huge.

SBI’s total FII holding is sub 10% and it is again consistently at the lowest level. Historically, SBI’s lowest valuation on price to book, I am not speaking of price to adjusted book, price to book was somewhere around 1.17 during FY09. Today also you are at 1.2 price to book.

So when you look into these aspects you are actually coming back and saying that SBI is generally quoting at a historically low valuation. If the economy recovers a bit, even slightly, there are chances your loan loss write off is not going to be quite huge in terms of many of these NPAs. You probably may have to take a write off on 40-50% of the NPAs and restructured book etc, etc.

Once you start analysing it and you start looking at it and saying that see even if some of the institutional investors start buying into something like SBI it is going to be a game changer, the valuation differential will tend to narrow.

Number two, we all forget that SBI probably has the strongest retail franchisee in this country.

What has been your analysis of LIC Housing Finance numbers? It is a strong outlook by the management. Do you think this could be an outperformer in the next few months?


The way we look at it, private sector banks are slowly coming out with numbers, private sector banks have been gaining market share over the last one year. Q1 FY16 to Q1 FY17, every private sector bank has actually seen a deposit growth and the business growth and asset and liabilities growth in excess of 20% plus. PSU banks have seen a contraction. The only outlier has been SBI which has beaten the industry benchmark again by growing by 12% as against 10% for the industry.
Now we continue to believe that the private sector banks numbers will be robust in terms of asset and liability growth and so will be NII and the profitability. The key factor will be how much are going to be the incremental slippages, so far so good.

Now coming back to the other side, in terms of some of the results, I think if there is a disappointment, the tiles were disappointing. Cera Sanitaryware, Kajaria Ceramics were disappointing.

The home improvement segment which has been growing pretty strongly so far, which includes your paints, your tiles, your plywood, a lot of those kinds of segments, it will be interesting to watch how the paints segment actually come out with their results now.