SBI’s March quarter was a big beat, CLSA said, while revising its target on the stock to Rs 650 from Rs 600 earlier. FY21 slippages at less than 1.2 per cent of the loans were the best in class and the corporate credit cycle is clearly turning with retail slippages at less than 0.5 per cent.
Morgan Stanley said the largest lender by assets is entering a period of falling provisions, higher loan growth, higher net interest margin (NIMs),and controlled costs. “Currently, this does not appear to be priced in,” it said while suggesting a target of Rs 600 on the stock.
“Subsidiaries form nearly 40 per cent of SBI’s current market cap, even after assuming a 20 per cent holdco discount. The bank is 60 per cent of market cap. Its implied valuation is not expensive at 0.7 times March 2023 book,” Morgan Stanley said.
Goldman Sachs finds the stock Rs 648-worthy.
On Monday, the scrip climbed 4.4 per cent to hit a high of Rs 418.90 on BSE.
Nomura India said that the second wave of Covid-19 may cause greater distress in the Tier III & below geographies and SBI could face relatively higher non-performing loans (NPLs) compared to the first wave. “But, we feel SBI may still undershoot the FY21 credit cost. We expect RoA at 80 basis points and RoE at 14 per cent in FY22,” it said.
RoA stands for return on asset and RoE for return on equity.
The comfort, Nomura said, comes from the surprisingly lower NPL formation ratio, far better than peer private sector banks in a pandemic year.
“The lower slippages are also a function of muted loan growth in corporate and SME businesses, more so in the past three years and as its share in the loan mix fell from 53 per cent in FY16 to 43 per cent in FY21. Support also came by way of Rs 25,000 crore of emergency credit loans. Meanwhile, two-thirds of retail are still secured mortgage and auto loans, where the delinquency levels are usually lower. The problem could have been the potentially largely unsecured retail book, where management is deriving comfort that 95 percent of borrowers are salaried, of which half are government employees,” it said. Nomura valued the stock at Rs 550.
Despite over 20 per cent market share, SBI’s profitability against peers has been subdued so far. But Morgan Stanley expects SBI will see the highest profits among Indian banks going ahead.
SBI reported an 80 per cent year-on-year rise in net profit to Rs 6,450.75 crore for the quarter ended March, slightly above analysts’ estimates. Provisions and contingencies fell to Rs 11,051 crore for the bank in March quarter from Rs 13,495.1 crore it had reported for the corresponding period a year ago. Gross non-performing assets ratio came in at 4.98 per cent in Q4 from 5.44 per cent in the previous quarter. Net interest income saw healthy growth of 19 per cent on year to Rs 27,067 crore, above analysts’ estimates.
JP Morgan has raised its target on the stock to Rs 515 from Rs 450. The brokerage said that the possibility of large shocks to the bank’s asset quality is limited but there could be some Covid 2.0 impact on SME books that account for 10 percent of advances .
“SBI did not give an outlook on credit cost guidance for next year given an evolving situation on Covid-19. We expect the bank’s ROA to reflate back to the historical average of 0.8 per cent with ROEs of 13 per cent allowing a reflation back to 1-1.2 times P/B range for the parent bank. Outlook on credit growth, however, remains hazy and hence can be an upside cap on re-rating,” JP Morgan said.
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