Analysts Raise Target Prices On SBI After Q2 Results

Most analysts lauded State Bank of India’s reasonable capital position, cheap valuation and lower credit costs as they raised price targets on the nation’s largest lender after it beat estimates in the quarter ended September.

Net profit rose by more than half over the year earlier to Rs 4,574 crore in the July-September period. Its core income, too, increased 14.5% to Rs 28,181 crore. Asset quality for the lender improved on a sequential basis, while provisions fell 49% year-on-year to Rs 5,619 crore.

The bank reported slippages worth Rs 2,756 crore compared with Rs 8,805 crore a year ago. It, however, expects further Rs 20,000 crore worth of slippages in the second half of this financial year.

But that didn’t deter analysts from maintaining their bullish investment recommendations on the state-run lender.

Of the 51 analysts tracking SBI, 49 have a ‘buy’ rating and one ‘hold’ and ‘sell’ each. The average of Bloomberg consensus 12-month price targets implies an upside of 35%.

Shares gained as much as 6.8% to Rs 221. This is the biggest single-day jump for the stock in four months. The stock trades at the highest in two months.

Here’s what the analysts have to say:

Morgan Stanley

• Upgrades to overweight from equalweight; raises price target to Rs 280 from Rs 215 apiece
• Risk-reward balance is now attractive
• Macro tail risk has diminished and asset quality trends have held up well
• Well positioned on liquidity
• Expects about 9% RoE in FY22 and 13% in FY23
• A sharp rise in Covid-19 cases is a key risk to the thesis

CLSA

• Maintains 'buy' rating; hikes price target to Rs 330 from Rs 310
• Growth in net interest income, pre-provisioning operating profit, commentary on asset quality was reassuring
• Reduces estimated credit costs to 200 basis points from FY21 from 230 basis points earlier
• Reduction in credit costs drives 60% earnings estimate increase for FY21
• Expects RoE of 7.6%, 9.7% and 11.9% in FY21, FY22 and FY23, respectively
• Valuations should start to mean-revert as uncertainty around asset quality decreases

UBS

• Maintains 'buy' rating; raises price target to Rs 275 from Rs 260 apiece
• Asset quality trends in line with private peers
• Higher margins and lower provisions support earnings growth
• Excess provision lowest as compared to private peers
• Increases FY21/22 earnings estimates by 4% each
• Current valuation prices in all the negatives

Macquarie

• Maintains 'outperform' rating; hikes price target to Rs 308 from Rs 270
• Incremental stressed assets at about 2.5% comes as a positive surprise
• Inadequate provisions so far but build-in enough cushion
• Management has missed guidance in the past but draw comfort from 520-basis points credit costs built into earnings model
• Valuations are currently cheap
• Well capitalised and has relatively strong operating profits to provide for bad assets
• Top pick in the PSU space

Antique Stock Broking

• Maintains 'buy' rating; raises price target to Rs 280 from Rs 260
• Guidance on asset quality stays positive
• Healthy core performance, modest loan growth and excess liquidity
• Highly levered to recovery environment that can drive net interest margins higher and credit costs lower
• Capital levels are reasonable for the near-term
• High coverage ratio provides cushion on legacy non-performing loans

Emkay

• Maintains 'buy' rating; raises price target to Rs 265 from Rs 240
• Retail credit growth is gaining pace
• NIMs to remain volatile
• Management expects moderate stress formation
• Raises FY21 estimates by 52% and FY22/23 estimates by 18% and 9%, respectively
• Factoring-in slightly better growth momentum, improving fees and expected lower stress formation than earlier
• Like SBI among peers for strong liability profile, high retail orientation, reasonable capital position and undemanding valuations