Analysts have raised earnings estimates and target prices for State Bank of India, and expect a further rerating on account of its lower slippages, fall in credit costs and attractive valuations.
India’s largest lender saw its net profit decline 7% year-on-year to Rs 5,196 crore in the quarter ended December. Its net interest income, however, rose 4%.
While the bank’s proforma gross non-performing assets stood at 5.44% against 5.88% in the preceding three months, it reported slippages worth Rs 2,073 crore, which were not classified as NPA owing to the Supreme Court’s order.
“Our provision coverage ratio is more than 90% so we do not expect any large provisions to be made against these assets in the future,” said Dinesh Kumar Khara, chairman at SBI. Total provisions rose 43% year-on-year to Rs 10,324 crore.
According to CLSA, full-year slippages of 1.5% of total loans is the lowest the bank would have seen in the last 15 years.
Besides, SBI aims to report double-digit credit growth by the second quarter of the next fiscal, spurred by a revival in corporate credit demand. “We already have sanctioned term loans of about Rs 25,000 crore into the public sector,” Khara told BloombergQuint in an interview.
Shares of State Bank of India gained as much as 10% to an all-time high of Rs 390.6. The stock is up for the fifth straight day and has gained close to 40% during this period. Of the 48 analysts tracking SBI, 45 recommend a ‘buy’, while three suggest a ‘hold’. Based on the 12-month Bloomberg consensus data, the stock has a return potential of 14.7%.
Here’s what analysts have to say...
CLSA
- Maintains ‘buy’ rating; raises price target to Rs 560 apiece from Rs 385.
- Strong NII provision; large buffer built for employee provisioning.
- Asset quality is delivering better outcomes versus even private banks.
- Revises earnings estimates higher by 15-26% and expects RoEs of 14% by FY23.
- Expects material re-rating beyond 1x book.
- Still remains a deep opportunity and current re-rating should continue.
Macquarie
- Maintains ‘outperform’ rating; hikes price target to Rs 450 apiece from Rs 360.
- Increased confidence in balance sheet, strong asset quality.
- Pare credit cost assumptions for FY21, FY22 and FY23 by 40, 30 and 30 basis points, respectively, to 240 basis points, 120 basis points and 120 basis points.
- Can sustain RoA of 1%.
- Raises EPS estimates by 77%, 13% and 14% for FY21, FY22 and FY23, respectively.
- Remains top pick among PSUs.
JM Financial
- Maintains ‘buy’ rating; raises price target to Rs 480 apiece from Rs 350.
- Strong results with improvement across all key parameters.
- Expects SBI to report lower slippages / restructuring for FY21, followed by sharp declines in FY22/FY23.
- Liability franchise remains unparalled with deposit growth of 14% and robust CASA ratio.
- Asset quality perceptions kept valuations suppressed despite core fundamentals consistently outperforming.
- Expects RoA/RoE of 0.8% and 15%, respectively, by FY23 as credit costs normalise.
- Expects multiples to re-rate higher as RoAs expand.
- Remains top pick.
Emkay
- Maintains ‘buy’ rating; hikes price target to Rs 460 apiece from Rs 340.
- Once again surprised positively on asset quality.
- Retail credit growth gaining pace which should lead to structurally stronger NIMs.
- Will be one of the biggest beneficiaries of the pick-up in lumpy corporate resolutions stalled for long.
- Revises earnings estimates higher for FY21-23 by 30-60% and expects RoAs and RoEs of 0.8% and 14%, respectively, in FY23.
- Limited stress from Covid, corporate resolutions to drive-down credit costs.
- Likes strong liability profile, higher retail orientation and sharply improving return ratios.
Motilal Oswal
- Maintains ‘buy’ rating; raises price target to Rs 475 apiece from Rs 330.
- Robust operating performance in a challenging environment.
- Asset quality outlook encouraging.
- Slippages plus restructuring to remain within the guided range.
- Strong operating performance, controlled slippages and higher coverage provides comfort.
- Well on track to keep credit costs under control.
- Recoveries from resolution of large accounts can further support earnings.
- Projects RoA, RoE of 0.8% and 14.5% by FY23.
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