India's largest lender State Bank of India (SBI) was in focus on Friday after it posted robust results for the quarter ended March 2023 (Q4FY23). Brokerages retained their positive stance on the bank with target price hinting at upsides between 15 and 34 percent after the public sector lender reported its highest-ever quarterly profit for the fourth quarter.
It reported an 83 percent surge in its standalone net profit at ₹16,695 crore in the quarter under review versus ₹9,113 crore in the same quarter last year.
Meanwhile, SBI's net interest income for the fourth quarter rose 29 percent to ₹40,393 crore as against ₹31,198 crore in the corresponding quarter last year. Other income grew 18 percent YoY to ₹13,960 crore, resulting in total revenue of ₹54,400 crore.
Both net profit and NII for the March 2023 quarter were above Street estimates.
Provisions (other than tax) and contingencies for the PSU bank also more than halved, down 54 percent to ₹3,316 crore in Q4FY23 versus ₹7,237 crore in the year-ago period.
Its asset quality also improved in the March 2023 quarter. The lender's gross non-performing asset (NPA) ratio came in at 2.78 percent in Q4FY23 against 3.14 percent in the December quarter and 3.97 percent in the March quarter of last year. Meanwhile, its net NPA ratio also came in lower at 0.67 percent in the fourth quarter from 0.77 percent in the third quarter and 1.08 percent in the year-ago period.
For the full financial year FY23, SBI's net profit crossed ₹50,000 crore. It rose 58 percent to ₹50,232 crore in FY23. Meanwhile, its NII for FY23 increased by 20 percent in FY23.
Stock price trend
The stock rose 2 percent in intra-day deals to its day's high of ₹586. It has jumped 25 percent in the last 1 year but is down 6 percent in 2023 YTD.
The stock has given negative returns in 3 of the 5 months of the current calendar year so far. It has lost 0.6 percent in May so far after a 10.4 percent rise in April and a 0.2 percent gain in March. However, it shed 5.5 percent and 9.8 percent in February and January 2023, respectively.
The stock hit its 52-week high of ₹629.65 on December 15, 2022, and a 52-week low of ₹430.80 on June 20, 2022.
It is currently around 9 percent away from its 52-week high and is up 33 percent from its 52-week low.
Brokerages retained their bullish outlook on the stock post the Q4 numbers. Strong fundamentals, continued growth momentum, margin expansion and robust asset quality will drive the stock going ahead, they believe.
JM Financial: The brokerage retained a ‘buy’ call on the stock with a target price of ₹700, indicating an upside of 22 percent. JM believes the delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters driving moderate credit costs will drive incremental stock returns for SBI.
It pointed out that SBI’s core fundamentals continue to be on a strong footing. Further, at current valuations, the capital raise will be book value per share (BVPS) accretive and thus the brokerage is not overtly concerned. it expects asset quality to remain robust and build in credit costs of 0.55 percent over FY24-25E.
"SBINs liability franchise remains unparalleled which along with a strong CASA ratio and excess SLR keeps management optimistic of sustaining the growth momentum without a major blip on the cost of deposits front. Asset quality performance continues to be on a strong footing with controlled slippages resulting in improvement in NPL ratios," it said.
Motilal Oswal: The brokerage has a ‘buy’ call on the stock with a target price of ₹700, indicating an upside of 22 percent.
The brokerage noted that SBI delivered a mixed quarter as PAT rose 83 percent YoY aided by lower provisions in Q4FY23. PPoP, albeit, reported a miss of 9 percent hit by higher opex, it added.
"SBI delivered a mixed quarter led by margin expansion and lower provisions driving earnings while higher opex hurt operating profits. Business growth remained healthy driven by growth across segments. A higher mix of floating loans (MCLR), which could benefit further from re-pricing, will continue to support NII and overall earnings even as the deposit cost could increase. Asset quality was strong with tight control on slippages and improvement in headline asset quality ratios, with the restructured book being under control at 0.8 percent," it reviewed. It estimates SBI to deliver FY25 RoA/RoE of 1.0 percent/17.1 percent.
Prabhudas Lilladher: The brokerage has retained a ‘buy’ call on the stock and raised its target price to ₹770 ( ₹730 earlier), indicating an upside of 34 percent.
While SBI saw a mixed quarter, the management sounded confident about maintaining core profitability driven by 1) good quality growth given stronger underwriting 2) benign asset quality with lower net slippages and multi-year low GNPAs 3) healthy asset provision cushion of 80bps which could more than suffice for ECL impact and 4) plow back of profits and creating value without raising capital, stated the brokerage.
Nirmal Bang: The brokerage has maintained a ‘buy’ call on the stock with a target price of ₹664, implying a potential upside of 15.6 percent.
As per the brokerage, the bank's Q4FY23 performance was healthy, driven by balance sheet momentum, NIM expansion, and lower provisioning. Balance sheet expansion was driven by domestic credit and deposit growth at 4.9 percent QoQ and 5.1 percent QoQ, respectively, it added.
Asset quality continued to show an improvement, driven by lower slippages and higher recoveries and upgrades, the brokerage further observed. The bank registered almost a decade-high RoA/RoE of 1.2 percent/20.6 percent for Q4FY23 and the brokerage expects it to clock RoA/RoE of 1 percent/16 percent for FY25E.
HDFC Securities: The brokerage retained a ‘buy’ call on the stock with a target price of ₹732, indicating an upside of 27.5 percent. SBI posted its highest-ever quarterly profit and a strong beat, led by healthy loan growth, better fees and lower credit costs, having front-loaded its provisions during 9MFY23 on a prudent basis, said HDFC Securities.
However, it noted that while a relatively low LDR (73 percent) and a high stock of surplus SLR ( ₹4 lakh crore) offer comfort on incremental loan growth, the management has guided for modest growth in deposits, backed by excess liquidity on the balance sheet. The brokerage also tweaked its FY24E/FY25E estimates to factor in stronger loan growth and lower credit costs, partly offset by higher opex.