SBI gains 8% from Friday's low on improved asset quality in Q4FY19

The stock was up 2 per cent at Rs 314 during early morning trade on Monday, rallying 8 per cent from its Friday's low of Rs 292 on the BSE.

Shares of State Bank of India (SBI) were trading 2 per cent higher at Rs 314 during the early morning trade on Monday, after the bank reported healthy March quarter numbers for 2018-19. The stock extended its Friday's gain of over 5 per cent as it witnessed buying interest after the bank reported improvement in asset quality during Q4FY19. 

The stock has rebounded 8 per cent from Friday’s low of Rs 292 on the BSE.

The bank’s gross non-performing assets (NPAs) ratio declined to 7.53 per cent against 8.71 per cent in the previous quarter and 10.91 per cent in the corresponding quarter of the previous fiscal. The Net NPAs during the period came in at 3.01 per cent against 3.95 per cent in the previous quarter and 5.73 per cent in the year-ago quarter.

The public sector lender, which had reported a loss of Rs 7,718 crore in a year ago period, reported a net profit of Rs 838 crore for Q4FY19 on the back of higher provisions. The net interest income (NII) during the quarter under review rose 14.9 per cent to Rs 22,954 crore versus Rs 19,974 crore.

“Asset quality, margin and growth are improving for SBI. Slippages are under control with good visibility of higher recovery and upgradation. Delay in pace of national Company Law Tribunal (NCLT) recovery process has led the credit cost to remain elevated throughout the FY19,” analysts at Narnolia Financial Advisors said in a result update.

They added that as majority of credit cost was provided for legacy book, provision coverage ratio (PCR) has improved to 79 per cent. 

"With the receding of stress additions, the credit cost will dip significantly in FY20," the brokerage firm said, adding, "On the margin front, net interest income (NIM) is likely to improve with strong low-cost liability franchise."

It maintained a ‘buy’ rating on the stock with the price target of Rs 429 per share.

Resolution of exposures reffered to insolvency and bankruptcy code (IBC), analysts say, could provide potential write-backs of Rs 16,000 to Rs 18,000 crore.

"While we do understand that there are concerns over exposures of housing finance companies (HFC) and power and needs to be monitored; resolution of exposures referred to IBC could provide cushion towards negative surprise on asset quality and aid profit and loss," analysts at Antique Stock Broking said.

They further added that even with revised expectations for NIM and credit cost for FY19, earnings expectations for FY20 remained unchanged. They maintained ‘buy’ rating on the stock with target price of Rs 390 per share.