SBI extends rally post Q3 results; soars 5% to new high on steady outlook

In past 15 trading days, the market price of SBI has zoomed 24 per cent as the bank's management remains confident on growth, maintenance of margins and improvement in RoA ahead

Shares of State Bank of India (SBI) surged 5 per cent to a new high of Rs 747.45 on BSE in Wednesday’s otherwise intra-day trade. In comparison, the S&P BSE Sensex was down 0.02 per cent at 71,539 at 02:25 pm.

In the past 15 trading days, the market price of SBI has zoomed 24 per cent on a steady outlook as the PSU bank’s management remains confident on growth, maintenance of margins and improvement in RoA ahead.

SBI reported healthy performance in the October-December quarter (Q3FY24) while optically earnings were marred by one-time wage and pension-related provisions during the quarter. 

The bank expects credit growth to remain healthy and anticipates a growth rate of 14-15 per cent in FY25, in line with industry growth.

The corporate loan pipeline for the bank remained strong at Rs 4.6 trillion and it is expected to focus on the renewable sector as the next trigger for growth. Healthy business growth along with stable margins and asset quality is likely to boost profitability, according to analysts.

"SBI’s business growth remained healthy both on advances (14.4 per cent YoY) and deposits (13 per cent YoY) with continued focus on retail loans and term deposits. Slippages came higher sequentially at 67 bps, however, steady trajectory with below 1 per cent accretion provides comfort," analysts at ICICI Securities said in a result update.

SBI has demonstrated its strength in the last few quarters both on core operating performance and asset quality. With normalization in staff cost, the brokerage said as it expects RoA to remain at 1 per cent in FY25-26.

Gains on treasury and recovery from existing stressed book could act as positive surprise, it said, keeping a ‘buy’ rating on the stock and a target price of Rs 800.

SBI expects the asset quality to remain steady for FY25, following its improvement during the quarter. The credit cost is expected to remain under control with moderate levels of slippage, as per KR Choksey Shares and Securities. 

"Digital initiatives will be the key growth driver for the bank to sustain its business momentum and improve its operating leverage. Its subsidiaries will continue to add value, led by their strong leadership positioning,” it said.

Meanwhile, a sharp earnings turnaround on asset quality improvements and attractive valuations has contributed to PSU banks positive stock performance, said analysts at Jefferies.

The foreign brokerage said PSU banks have also typically enjoyed lower loan-deposit ratios, allowing them to push loan growth. PSU bank credit growth in FY24 is within 2-3 ppt of private, against the 8-10 ppt gap in growth seen pre-COVID.

A comparison of PSU Bank valuations vs the 2006-12 period (similarly strong fundamentals and rising capex cycle) suggests a rerating potential of 25-30 per cent on PE/PB valuations. Normal RoE compounding based returns of 15 per cent plus would be over and above, Jefferies said with a ‘buy’ rating on SBI.