State Bank of India (SBI) share price has tanked 5 per cent so far this year. The stock has performed better in comparison to benchmark Nifty 50 index which has plunged 10% YTD. Despite the recent correction in SBI shares amid extreme market volatility, analysts at Motilal Oswal have a positive outlook on the stock as they believe that the public lender is well poised to sustain the growth momentum going forward. The brokerage sees 35 per cent upside in SBI share price and has reiterated ‘Buy’ rating on the stock. SBI shares were quoting at Rs 445, down 0.2 per cent on the National Stock Exchange (NSE) intraday.
Strong balance sheet, positive loan growth momentum
State Bank of India has strengthened its Balance Sheet by creating higher provisions on stressed accounts. It raised its PCR to around 90% in 4QFY22 from ~65% in 1QFY18 and holds a higher provision coverage on Corporate NPAs. This has resulted in significant clean-up for the balance sheet with the focus now shifting on growth, according to Motilal Oswal analysts. “We thus expect loan growth momentum to pick up and report 12% CAGR over FY22-24,” they said.
Well-placed to support margins in a rising interest rate scenario
The analysts highlighted that SBI has one of the best liability franchises (CASA mix: ~45%). This coupled with a high mix of MCLR/Floating rate/EBLR loans (75% of total loans) puts it in a better position to support margins in a rising interest rate scenario. Additionally, the public lender’s subsidiaries including SBI MF, SBILIFE, SBICARD, and SBI Cap – exhibited robust performances over the last few years, supporting the brokerage firm’s SoTP value for the bank. “Unlocking of value from SBI MF over FY23E could further support the SOTP,” the said.
Improved asset quality, decline in NPAs
Motilal Oswal analysts further stated in the report that SBI’s asset quality improved considerably with an impeccable Retail GNPA of ~0.74%. Overall, fresh slippages were also controlled at ~1% of loans, which were lower than the private peers. This, coupled with healthy recoveries/upgrades, resulted in a further decline in GNPA/NNPA ratio to 4%/1%, respectively. “We expect slippages to remain controlled going forward and estimate credit cost to undershoot long-term trends at ~0.9% over FY22-24,” they added. Among PSU Banks, SBI remains the best play, according to analysts, on a gradual recovery in the Indian economy, with a healthy PCR (~75%), Tier I of 11.4%, a strong liability franchise, and improved core operating profitability.
Stock Rating: Buy
Target price: Rs 600; Upside: 35%
SBI has delivered a strong FY22 propelled by steady business, revenue growth and controlled provisions. Bank’s management expects the momentum to remain healthy as utilization levels improve, while Retail growth is likely to remain steady. A higher mix of floating loans and CASA mix will support margin in a rising interest rate environment. Asset quality performance has been strong and the outlook remains healthy as restructured book remains in control at 1.1%, while the SMA pool has declined further to 13bp of loans, according to the analysts.
“We conservatively estimate credit cost to moderate to 0.9%, enabling 28% earnings CAGR over FY22-24. We thus expect SBIN to deliver an RoA/RoE of 0.9%/16.7% in FY24, respectively,” they said. SBI remains Motilal Oswal’s top ‘Buy’ in the sector with a target price of Rs 600 apiece.
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