Despite State Bank of India's (SBI) June quarter (Q1FY23) earnings missing analysts' estimates, most brokerages retained their bullish view on the public sector lender. While brokerages were unimpressed by the results on the back of low net interest income (NII) growth and miss in net interest margin (NIM) in the quarter under review but believed the largest public sector lender will report a strong earnings progression right going ahead. They also cut the earnings forecast for the lender for FY23.
The bank reported a 7 percent YoY decline in its net profit at ₹6,070 crore in Q1FY23, missing Street estimates compared with ₹6,504 crore in the same quarter last year. Its NII grew 13 percent YoY to ₹31,196 crore compared with ₹27,638 crore in the corresponding quarter last year, the lowest among the top 5 lenders.
Meanwhile, its NIM for the quarter improved 8 basis points to 3.23 percent from 3.15 percent in the year-ago quarter, missing analysts estimates.
While provisions made during the quarter fell both sequentially and on a YoY basis, mark-to-market (MTM) losses in treasury operations weighed on the numbers, the lender noted. Asset quality improved, with the gross non-performing assets ratio coming in at 3.91 percent from 3.97 percent YoY. Provisions fell 39 percent sequentially to ₹4,392.38 crore.
"The MTM hit also had an adverse impact on bank’s ROA and ROE, which stand at 0.48 percent and 10.09 percent, respectively. Excluding trading income and MTM, core operating profit increased 14.39 percent YoY, from ₹16,873 crore in Q1FY22 to ₹19,302 crore in Q1FY23," the bank said in its earnings report.
The stock fell nearly 3 percent in intra-day deals today to ₹513.85 per share on the back of June quarter earnings missing analyst estimates.
However, despite that, domestic brokerage house Motilal Oswal said that SBI remains one of its conviction Buy in the sector.
"SBI reported a 14 percent YoY growth in core PPOP. However, higher treasury losses dented earnings, which declined 7 percent YoY. NII stood a tad weaker. However, the outlook remains encouraging as the bank benefits from the re-pricing of its floating rate loan portfolio, amounting to 74 percent of total loans. We expect NII to grow at an average of 16 percent over FY22-24," said the brokerage.
A higher than expected treasury loss resulted in a marginal cut to its FY23 earnings estimate, it said. However, the brokerage expects SBI to report a strong earnings progression right from Q2FY23, resulting in a 29 percent earnings CAGR over FY22-24. It estimates an RoA/RoE of 0.9 percent/17 percent in FY24.
The brokerage also noted that SBI's asset quality performance was stable, with a marginal improvement in headline asset quality, despite a seasonally weak first quarter, while the restructured book remains under control at 1 percent.
The brokerage maintained its 'buy' call on the stock and raised its target price to ₹625, implying a potential upside of over 18 percent.
Meanwhile, Jefferies also maintained its buy rating on SBI post its June quarter results with a target price of ₹630, indicating a potential upside of 18 percent.
"Loan growth improved to 15 percent on a YoY basis on a lower base and a healthy 3 percent QoQ rise. MTM losses were a drag on profit but can settle now," it said.
However, the brokerage lowered its FY23E earnings by 6 percent to incorporate treasury losses. "We see 14 percent CAGR in loans over FY22-25, but that may also require raising capital as its Common Tier I CAR of 9.7 percent (versus minimum requirement of 8.6 percent) would need to be boosted," it said.
Another brokerage JPMorgan also maintained its overweight rating on SBI with a target price of ₹650.
"Growth is up and bonds are down. The net interest margins (NIMs) are down on a QoQ basis, but the full-year trajectory still looks up," JP Morgan stated.
It added that the credit costs trend is below normal but the asset quality is robust which is a positive sign. Loan growth delivered a positive surprise, liquidity remains comfortable while capital raise needs to be seen, as growth has picked up, it further said.
Meanwhile, in a contrarian view, Edelweiss Securities downgraded the stock from ‘Buy’ to ‘Hold’, and revised the target to ₹595 from ₹640.
"We believe loan growth has peaked. While NIM would improve from current levels, it has been reset to a lower base following the miss in Q1FY23, leading to a cut in our full-year NIM forecast," it said.
It cut the FY23E earnings per share (EPS) forecast by 1 percent. "The cut in operating profit is higher at 10 percent, but we are also lowering our credit cost from 90 basis points (bps) to 75bps, leading to a muted overall cut. However, we anticipate a 15–17 percent downside to our EPS for FY23 if the bank does not sell a stake in one of its subsidiaries," said the brokerage.
