Mutual Fund arm to be listed at a favorable time – SBI

Mutual Fund arm to be listed at a favorable time – SBI

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 17,092 (-0.7%) all sectoral indices ended in the red. The top losers were  MEDIA (-3.3%), REALTY (-2.9%), and PSU BANK (-1.5%).

Among the NIFTY components, the top losers were TATASTEEL (-4.1%), BPCL (-3.7%), and TCS (-3.5%) while M&M (+1.7%), BAJAJFINSV (+1.2%), and HEROMOTOCO (+1.2%) were the top gainers.

Edited excerpts of an interview with Mr. Ashwani Bhatia, MD of SBI with ETNow on 22nd February 2022:

  • Globally inflation is becoming a worry. The world has not seen those kinds of inflation rates in the US. They were last seen in the 70s and the early part of the 80s. The Indian economy is slightly different, and SBI plans to wait and watch.
  • The process has started for the listing of SBI Mutual Fund and all the paperwork has begun. The public will be hearing something from the company rather soon. There is no urgency for the bank to go to the market. When it believes that the timing is good, the markets are favorable and the valuations are lucrative, it will go to the market.
  • SBI does not need capital at the moment and the Bank’s capital position right now is quite comfortable. The Asset Management business (SBI MF) is doing extremely well. It has grown more than the market and it continues to gain market share. It has gained customers and right now it is running an NFO where it is garnering a decent response as well.
  • The bank just rejigged some rates in some buckets based on its ALCO requirements. It raised rates in the one to two years bucket a little earlier because that forms the bulk of its deposit base on the fixed deposit side. Recently, it did the same for longer tenure fixed deposits.
  • The Bank is adopting a wait and watch approach, but for the moment, there is no movement on the advances side. But it expects a natural progression on rate hikes on the assets side.
  • The bank believes it is going to be a very gradual way in which RBI will start reversing the policy rates. Starting with changing the stance, then moving on to the reverse repo and repo rates so on and so forth.
  • Currently, there is no thinking on when the bank will do the YONO IPO. Right now, it remains part of the bank’s digital offering and packaging. It understands the potential of value unlocking to shareholders, however, there are no immediate plans for a separate listing of YONO.
  • SBI spends a significant amount both on the opex and capex as far as IT goes and is in line with whatever is happening outside. It started with the YONO quite a few years back but at the same time, it has tried to keep pace with all the new developments that have come in be it UPI or BharatPe or all the other instruments that have been started by the government or by NPCI and others.
  • Going forward, SBI believes the way we are going to transact, the way we are going to get loans is going to become much simpler because there is going to be a digital trail and with CIBIL, with scores, with all the kind of enablement that digital provides, things will become much better as far as lending and banking is concerned.

 Asset Multiplier Comments

  • As India’s largest bank and lender, SBI has managed to leverage its vast branch distribution network for its AMC business to transform SBI MF into one of the country’s largest Asset Management Companies. Its separate listing will provide for a significant value unlocking for all the shareholders.
  • SBI is often considered as a proxy for the Indian Economy, SBI’s plans for digital transformation-driven growth and increased penetration across rural India provide an excellent opportunity for the bank to be one of the best in the country.

 Consensus Estimate (Source: market screener website)

  •  The closing price of SBI was ₹ 498 /- as of 22-February-2022. It traded at 1.5x/1.3x/ 1.2x the consensus BVPS estimates of ₹ 333/ 380/ 426 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 650 /- implies a BV Multiple of 1.6x on FY24E BVPS estimate of ₹ 426/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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