India’s largest PSU bank SBI’s (State Bank of India) shares have gained close to 3% in the last two trading sessions to now trade at Rs 200 per share. Brokerage and research firm CLSA has a ‘Buy’ rating on SBI stock, calling it a “deep value opportunity”.
India’s largest PSU bank SBI’s (State Bank of India) shares have gained close to 3% in the last two trading sessions to now trade at Rs 200 per share. Brokerage and research firm CLSA has a ‘Buy’ rating on SBI stock, calling it a “deep value opportunity”. SBI share price has failed to breach the Rs 200 mark convincingly since its fall in March; it has managed to only gain a little over 10% since March 23, when the majority of the domestic stocks hit recent lows.
CLSA has increased the target price for SBI stocks, from Rs 270 earlier to Rs 310 now, valuing core bank at 0.7x Jun-22 book and Rs131/share of sub value. The brokerage firm, in a recent note, said that the public sector lender is better placed among other public sector peers driven by high government/PSU share in the loan book. CLSA has listed down five reasons why State Bank of India is an attractive ‘Buy’.
Asset quality — high government/PSU share; relatively better positioned
State Bank of India gets an advantage on the asset quality front, according to CLSA. SBI has 40% of its domestic corporate loans given out to PSUs and two-thirds share of mortgages from the Government/PSU employees. To add to that 90% of SBI’s personal loans are to government employees. “This has led to better-than-expected morat-2 performance and drives management comfort on current CET-1,” said CLSA.
Gained/maintained share across metrics in the last decade
“SBI is government-owned; this reflects in sticky cost ratios and faster monetary transmission,” the note said. However, unlike other PSU banks that have failed to hold their ground and gave up market share to private sector lenders, SBI has not caved in so far. SBI has gained or maintained its share in retail assets, Casa, overall loans, and deposits through the last decade.
Yes Bank bailout well structured
State Bank of India was the largest financial institution that led the restructuring of Yes Bank, earlier this year. This move by the public sector lender demonstrates the ability of government and SBI to balance national interest versus minority interest, said CLSA.
The lender has a strong subsidiary lineup. “All SBI subs have compounded by a 25-40% Cagr over the last 3-5 years and have become market leaders, driven by SBI’s distribution strength,” the note said. The brokerage report said that 40% of the target price on SBI should continue to compound at a fast pace.
State Bank of India is trading at a valuation of 0.3x one-year forward adjusted PB and at 1.2x one-year forward adjusted P/PPOP. Additionally the lender is expected to bounce back strongly in terms of earnings. CLSA estimates SBI’s net profit will slip to Rs 10,408 crore in financial year 2021. However, this is expected to recover strongly to Rs 20,840 crore in the next fiscal year and then to Rs 29, 515 crore in financial year 2022.