Shares of State Bank of India (SBI) fell 3.44 percent to ₹445.90 on BSE on June 13, in sync with the prevailing market sentiment. Equity benchmark the Sensex fell more than 2.68 percent in trade.
The stock hit its 52-week high of ₹549.05 on BSE on February 7, 2022 and since then it has come down about 19 percent.
This should not be concerning since the current market situation has triggered a sell-off in most stocks. The point here to see is if the stock of SBI can recover and give good returns in the medium term.
SBI's FY22 annual report is themed ‘setting a new standard in banking excellence’ focusing on productivity, adaptability, sustainability and inclusivity.
SBI ended FY22 with 13.9 percent RoE and 0.67 percent RoA aided by growth build-up, GNPAs at a decadal low,
slippages at less than 1 percent, credit cost at 55bps and a steady margin profile.
Brokerage firm ICICI Securities highlighted improved visibility on asset quality with ‘new normal’ credit cost of 1 percent, credit growth of 13 percent/15 percent for FY23E/FY24E, asset resolution and stable NIMs will drive RoE to more than 16 percent by FY23E/FY24E and valuations to 1.5 times Sep’23E book.
The brokerage firm has a 'buy' call with an unchanged target price of ₹673.
The brokerage sees many positive points in SBI's annual report. The bank's loan books showed impressive growth. SBI disbursed ₹1.46 lakh crore of home (and related) loans in FY22 commanding 35.3 percent market share amongst
banks. This aided 11 percent growth in the home loan portfolio to ₹5.62 lakh crore thereby constituting 23.87 percent of bank advances, ICICI Securities pointed out.
Besides, the bank has entered into tie-ups with India’s two largest original equipment manufacturers (OEMs), Maruti Suzuki and Hero MotoCorp, by which an eligible customer can generate an instant in-principle sanction letter while booking the car on the OEM platform. Bank was at the topmost position on both platforms among all financiers.
Also, the bank is aggressively catering to the needs of the salaried class (both government and private), pensioners and self-employed/other customers. It also extends loans to salaried customers of other banks through SBI Quick Personal Loans, ICICI Securities highlighted.
While the loan book's growth shows the bank's earnings were impressive, new initiatives in terms of lending and technological up-gradation are expected to augur well for the bank going forward.
"With stronger loan growth and credit flow, SBI remains a good buy for the long term. Looking at the long-term financials of the company credit is expected to grow by 12 percent in the coming years which will help SBI to gain stable profits. Also, SBI has shown steep improvement in asset quality i.e number of NPAs has reduced significantly as denoted by the last results and the same performance can be continued due to the rise in credit flow and utilization levels over a year," said Akhilesh Jat, Category Manager - Equity Research, CapitalVia Global Research.
"Due to huge selling in the current situation supported by global market trends SBI trades below 200 EMA levels and looks weak for the short term. The stock is having demand zone of nearly ₹420. So one can make the long position near ₹420 for the target of ₹495 with a stop loss of below ₹380," said Jat.
Punit Patni, Equity Research Analyst, Swastika Investmart underscored SBI will be one of the biggest beneficiaries of the revival of private CAPEX in the coming years and the rising retail loan demand is a cherry on the cake.
The pandemic had led to a delay in the expansion plans by the companies as they expected the demand to be subdued during the pandemic, however, due to RBI’s liquidity & other monetary measures and the government’s stimulus, there was a sudden spurt of demand. Due to this supply deficit and high demand, the capacity utilization of businesses has almost become full, Patni observed.
"During Q4FY22 commentary, the bank’s management said that the current working capital utilization has increased substantially. This will create a huge demand for both the working capital and the CAPEX loans. Revival in the MSME sector, rising credit card spending, and resumption of economic activities augur well for the retail segments. Apart from the growth factors, the bank has witnessed a reduction in GNPAs, slippages, and an improvement in overall asset quality, leading to a normalization of credit costs," said Patni.
"Further, the subsidiaries' performance remains good and digital initiatives will help the bank to optimize operating costs and improve reach. We recommend SBI due to its competitive advantages like huge network, CASA & cost of funds advantage, and the reasonable valuations. ₹525 is a potential target in the near term for the SBI," he added.
An average of 42 analysts polled by MintGenie have a 'strong buy' rating on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.