Domestic brokerage house Nirmal Bang is bullish on the largest public lender State Bank of India (SBI) and has retained its 'Buy' rating on the stock with a target price of ₹626 per share, indicating around 40 percent upside from its current market price of ₹448 per share.
The stock has risen over 16 percent in the last 1 year and is up 2.5 percent in May despite weak market sentiment.
Recently, India's largest public-sector lender reported a 41.2 percent jump in its standalone net profit at ₹9,113.53 crore for the fourth quarter ended March 2022. It had posted a net profit of ₹6,450.75 crore in the year-ago period. With this, the bank has registered its highest quarterly net profit in Q4FY22.
The net profit of the lender for FY22 grew by 55.19 percent YoY to ₹31,676 crore. Its gross NPA ratio was down by 101 bps YoY at 3.97 percent, while net NPA ratio was down by 48 bps YoY at 1.02 percent.
According to the firm the asset quality continued to improve, with NPAs declining QoQ and satisfactory performance on accounts coming out of the moratorium. It further added that the credit cost for FY22 stood at 94bps and the bank would like to contain it within 100 bps going forward.
Nirmal Bang also pointed out that the key operational metrics were strong, with the overall loan book growing by 11.6 percent YoY and 6 percent QoQ. Retail and Corporate both saw healthy and sustainable traction on the back of a pick-up in market demand.
"In the wholesale segment, pick-up in the utilization levels augurs well from a growth standpoint. NIM was stable QoQ at 3.12 percent. With 74 percent of the loan book on a floating rate, we see margins on a positive trajectory going forward," it added.
Meanwhile, HSBC, in its report said, "in a rising rate environment, and when the competition for deposits is likely to rise dramatically, SBIN is enviably placed with a strong deposit franchise, very low credit-to-deposit ratio and low cost of funds. It is also a price-setter for most products like home loans, LAP, corporate loans, SME, etc."
With a favourable asset quality cycle, it is ideally placed to deliver healthy loan growth, maintain NIMs and drive a recovery in its RoA/RoE to 0.8 percent/14 percent by FY24E.
However, it lowered the bank's target price to ₹600 (from ₹650 earlier) to reflect pressure on subsidiary valuations as well as on the multiple assigned to the core bank.
Recently, the bank also hiked the marginal cost of lending rate (MCLR) by 10 basis points (bps). As per the recent revision, MCLR has been hiked from 6.75 percent to 6.85 percent across overnight, one month and three-month tenors. Meanwhile, the MCLR for a six-month tenor has been raised from 7.05 percent to 7.15 percent.
