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Brokerages Maintain Rating On SBI Despite Q4 Loss

Brokerages expect recovery and loan growth to drive SBI’s earnings going forward.

SBI chairperson Rajnish Kumar with the bank’s senior management during the announcement of Q4 results. (Source: PTI)
SBI chairperson Rajnish Kumar with the bank’s senior management during the announcement of Q4 results. (Source: PTI)

Most brokerages have retained their rating on State Bank of India, despite its Rs 7,718-crore loss in the March quarter, as analysts said the asset quality deterioration isn’t as severe as its peers and 75-80 percent of the slippages are from within the stressed assets pool.

With rising yields, the first quarter of the current financial year may see further losses, which may be partly offset by lower pension costs, Credit Suisse said in a note post the results.

The bank will need additional capital to support loan growth and would also look at options to monetise value in the subsdiaries.
Credit Suisse Note
Opinion
SBI Draws Out A Two-Year Road Map To Recovery

Shares of SBI rose nearly 4 percent yesterday to close at Rs 253.90 apiece. The stock has dropped 11 percent in the last one year, compared to the almost 21 percent fall of the Nifty PSU Bank Index.

Here's what brokerages had to say on SBI post Q4 results:

Credit Suisse

  • Maintained ‘Outperform’ rating; cut target price to Rs 322 from Rs 381; the target indicates an upside of nearly 27 percent from Tuesday’s closing price.
  • Cut FY19 earnings per share by 3 percent and FY20 EPS by 20 percent on higher provisions.
  • Gross non-performing assets have likely peaked at 10.9 percent this quarter.
  • With bad loan cover at just 50 percent, credit costs will normalise only by financial year 2019-20.

Bank of America Merill Lynch

  • Maintained ‘Buy’ with target unchanged at Rs 380; the target indicates an upside of nearly 53 percent from Tuesday’s closing price.
  • Recognition now behind; recovery and loan growth to drive sharp rebound in earnings.
  • SBI is the key beneficiary of the asset quality and loan growth cycle.

Motilal Oswal

  • Maintained ‘Buy’, raised target price to Rs 365 from Rs 362 earlier; an upside of 43.8 percent.
  • Asset quality damage was controlled, with gross NPA increasing 12 percent quarter on quarter.
  • Credit cycle coming to an end; earnings to gain traction over FY19-FY20.
  • Raise FY19 and FY20 earnings growth estimates by 36 percent and 12 percent, respectively.

Prabhudas Lilladher

  • Maintained ‘Buy’; raised target price to Rs 349 from Rs 341; an upside of 37.5 percent from current level.
  • Asset quality issues yet to be over.
  • Resolutions to drive asset quality and earnings.

Jefferies

  • Retained ‘Buy’; cut target price to Rs 355 from Rs 365; still an upside of around 40 percent from current level.
  • Street may take solace that the gross stress has likely peaked, but for the balance of the stress pool watch list - to that extent, fourth quarter wasn’t disappointing.
  • Core profitability should see a cyclical improvement through second half of the current financial year, but return on equity is likely to reach 15-16 percent only by FY21.