On February 3, the State Bank of India (SBI) announced its third-quarter financial results for the fiscal year 2023. The bank, which is the country's largest lender, has recorded another strong quarter, with the net profit growing by 68.46% to ₹14,205 crore compared to a net profit of ₹8,432 crore for the same period last year. In the July-September quarter, the bank had reported a net profit of ₹13,265 crore.
The strong earnings in the quarter were aided by margin expansion, treasury gains, and healthy loan growth. In Q3 FY23, the net interest income of the bank came in at ₹38,069 crore, an increase of 24.05% YoY, driven by a nearly 18.61 percent growth in net advances and a 0.35 percent widening of the net interest margin to 3.50 percent.
The other income rose to ₹11,468 crore for the reporting quarter, an increase of 32.22% compared to ₹8,673 crore in the year-ago period.
On the asset quality side, the gross non-performing assets ratio declined to 3.14 percent in Q3FY23 from 4.50 percent in the year-ago period. While the net NPAs came down to 0.77% in Q3 compared to 1.34% in Q3 FY22, a drop of 57 basis points.
For the first time since 2016, the overall dud assets fell below ₹1 lakh crore due to a drop in the stock of NPAs. In addition, provisions for non-performing assets nearly halved to ₹1,586 crore in the reporting quarter.
Meanwhile, the bank said its overall exposure to the Adani Group is at 0.88 percent of the book, or around Rs. 27,000 crore and it does not see any difficulties in loan repayments.
Lending to Adani Group projects is with regard to ones having tangible assets and adequate cash flows, said the bank's chairman, Dinesh Khara.
The solid financial performance of the bank has led domestic brokerage firms to raise their target prices for the stock. Axis Securities stated that the bank has maintained consistent performance through one of the best-in-the-industry CASA and Cost-Income ratios, allowing the bank to benefit from operating efficiencies.
The brokerage has a new target price of ₹750 apiece on the stock, representing a significant upside of 37% from the stock's latest closing price of ₹547.
The bank’s asset quality performance has been consistently better than expectations, including eventually stressed asset accruals which resulted in credit cost normalization, the brokerage said.
Among PSU banks, SBI, with a healthy PCR, robust capitalization, a strong liability franchise, and an improved asset quality outlook, remains the best play on the gradual recovery of the Indian economy.
“We believe normalisation in credit costs and an improved growth outlook should lead to double-digit ROEs of more than 16.5% over FY23–25E,” said Axis Securities.
In a similar fashion, ICICI Securities also maintained its "buy" call on the stock with a SoTP-based target price of ₹805 apiece. However, the brokerage stated that the competitive pressure and deposit acceleration may weigh on NIM expansion.
Likewise, HDFC Securities maintained its positive outlook on the stock and raised its target price to ₹740 per share from ₹700 earlier.
Motilal Oswal, on the other hand, said the bank's asset quality remained strong with tight control on slippages and improvement in headline asset quality ratios, with the restructured book under control at 0.9%.
The brokerage has retained its "buy" rating on the stock with an unchanged target price of ₹725 apiece.
43 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
