Many domestic and global brokerages are bullish on the State Bank of India stock after the largest public sector lender reported weak Q3 results.
In the third quarter of FY24, SBI witnessed a 35% year-on-year decline in net profit, amounting to Rs 9,164 crore. The net interest income (NII) for the country’s largest bank was reported at Rs 39,815 crore, slightly below the estimated Rs 40,304 crore. The net interest margin of the lender stood at 3.22 percent.
Despite weaker performance in the third quarter of the current fiscal year, leading brokerages assert that SBI has effectively sustained its growth momentum, with confidence in the continuation of this positive trend.
Here is what top brokerage houses is to say on SBI
Jefferies on SBI
Jefferies notes that a near-term overhang may be expected due to potential capital raising. Despite this, Jefferies maintains a Buy call with a target of `810 per share.
The report acknowledges that Net Interest Margins (NIMs) were managed well, aiding Net Interest Income (NII) growth. Loan growth showed improvement, reaching 14%, particularly driven by an uptick in corporate loans.
State Bank of India (SBI) reported a mixed quarter with one-off pension provisions impacting earnings. However, the impact of high wage provisions was partially offset by a decline in loan loss provisions.
The estimated return on assets and return on equity for FY25 are 1.1% and 19.6%, respectively. Motilal Oswal maintains a ‘BUY’ rating with an unchanged target price of Rs 800.
Operating expenses remained high, affecting Pre-Provision Operating Profit (PPoP) growth. The management anticipates lower wage provisions at INR 54 billion in 4Q, leading to an expected improvement in operating profitability in FY25.
Margins contracted 7 basis points (bp) Quarter-over-Quarter (QoQ) to 3.22% in 3Q, but the bank anticipates margins to remain broadly stable, with a potential 1-2 bp decline. SBI has strategic levers such as CD ratio and MCLR repricing to ensure margin stability.
Business growth remains robust, with signs of recovery in the corporate segment. Asset quality is healthy as the gross non-performing asset ratio continues to improve, and the restructured book is well-managed at 0.5% of advances. Additionally, the special mention accounts pool stands at 12 bp of loans.
JM Financials on SBI
JM Financials maintains a positive outlook on State Bank of India (SBI), projecting a return on assets of 0.94% and return on equity of 16% for FY26E. The valuation of the core banking business at 1.2x FY26E Price-to-Book Value leads to a Sum-of-the-Parts based target price of INR 800, prompting JM Financials to uphold a BUY recommendation.
SBI reported a resilient quarter with Net Interest Income (NII) reaching INR 398 billion, showing a 0.8% quarter-over-quarter increase and a 4.6% Year-over-Year (YoY) growth. However, domestic net interest margins experienced a -9 basis points QoQ decline, settling at 3.34%. International NIMs remained steady at +2 bps QoQ, totaling 2.21%.
Operational expenses rose due to a revision in wage provisions, leading to pre-provision operating profit of rupees 203 billion, a 4.7% QoQ increase but a 19% YoY decrease. Credit costs remained lower at 0.21%, but the revision of pension liabilities resulted in additional provisions worth rupees 71 billion, causing a lower profit after tax of INR 91.6 billion, reflecting a -36% YoY and -36% QoQ decline.
Loan growth exhibited strength with a +5.2% QoQ and +15% YoY increase, reaching INR 35.2 trillion. In contrast, deposit growth was soft, recording a +1.6% QoQ and 13% YoY growth at INR 47.6 trillion. Loan growth across sectors was well-rounded, and the management maintains its growth guidance of 14-15%.
Asset quality demonstrated improvement with gross non-performing loans decreasing by -13 bps QoQ to 2.42%, and Net Non-Performing Loans (NNPL) remaining flat QoQ at 0.64%. The Provision Coverage Ratio (PCR) for the bank stands strong at 74.2%.
Management anticipates the common equity tier 1 to reach around 11% by March 2024, up from the current level of 9.1%. Despite challenges, JM Financials expects strong profitability in the future, emphasizing the delivery of guided growth, sustenance of NIMs, and controlled asset quality parameters as key drivers.