The State Bank of India (SBI) scrip ended at a three-and-a-half-year high of R2,940.15 on the BSE on Monday as brokerages raised their target price on the stock following the bank’s Q2FY15 earnings. The scrip closed the session 5.44%, or 151.70 points, higher.
On Friday, the bank reported a 30% y-o-y jump in net profit to R3,100 crore. It saw asset quality stabilise with gross NPAs as a percentage of gross advances falling 1 bp sequentially to 4.89% at the end of the September quarter. However, the net NPA ratio saw a sequential rise of 7 bps.
Japan-based brokerage Nomura has now revised its target for the stock from R3,050 to R3,150.
According to the brokerage, SBI faces lower risk of slippages from its restructured book, going forward. “Both slippages at R77 billion (R7,700 crore) and restructuring at approximately R40 billion (R4,000 crore) are 20-25% lower vs trends in the past few quarters. While the worst in Agri NPAs seems behind, mid-corporate and SME slippages continued to remain elevated at Rs 58 billion (Rs5,800 crore) but should improve in FY16F with improving macros. We draw comfort from SBI’s asset quality as we continue to see lower relapse risk from restructured book given its seasoning pattern,” said analysts at Nomura.
Among other foreign brokerages, JPMorgan raised its target price to R3,400. UBS Securities also upped it to R 3,400.
According to JPMorgan, technology-driven efficiency and cost-cutting initiatives will be key catalysts for the stock.
“Three main focus areas that may drive the stock are cost focus — both at the big picture level with technology-driven efficiency and with granular cost-cutting initiatives exercising pricing power on fees, deposits and lending and introducing more rigour in credit procedures,” JPMorgan said in a note.
YTD, the stock has gained 66.53%. Since Arundhati Bhattacharya was named the new chief of the bank on October 7, 2013, the scrip has gained more than 80%.