SBI hits new high after a gap of 1 year; stock surges 5% in 3 days

State Bank of India, on Wednesday, said it will be signing EURO 70 million Line of Credit with KfW (German Development Bank) for supporting Solar PV projects in India

Shares of State Bank of India (SBI) hit a new high, after a gap of one year, as the market price of the state-owned lender surged 3 per cent to Rs 640 on the BSE in Friday's intraday trade. The stock surpassed its previous high of Rs 629.65 touched on December 15, 2022.

In the past three trading days, the stock has rallied 5 per cent after SBI, on Wednesday, said it will be signing EURO 70 million Line of Credit with KfW (German Development Bank) for supporting Solar PV projects in India.

SBI is a public sector bank, and is the largest bank in India with a balance sheet size of over Rs 55 trillion. Post Covid, the bank has delivered sustained recovery in both business growth as well as asset quality. Strong distribution network, diversified product mix, and large customer base remains core strengths of the bank which enables it to deliver the best operating metrics in the PSU banking space.

"SBI has demonstrated its strength in previous quarters, both on core operating performance and asset quality. Management confidence on growth (14-15 per cent), steady margins, and return ratios remaining ahead of 1 per cent in FY24-25E warrants a re-rating, which is long due, and should see strong positive momentum. Plough-back of profits leading to improving return on equity (RoE) of ~16-17 per cent further adds to valuation comfort", according to analysts at ICICI Securities.

Large customer base and diversified product mix is seen aiding credit growth which is expected to be in-line with the industry at 14-15 per cent in FY24E. Advance growth may remain broad-based with focus on MSME and retail (home loans & Xpress credit) segment, which will enable business growth as well as support yields. Yields are expected to inch up gradually; however, faster accretion in term deposit and repricing of deposit rates is expected to impart some pressure on margins in FY24E, the brokerage firm added.

Motilal Oswal Financial Services, meanwhile, has reiterated its 'buy' rating on SBI with a target price of Rs 700 per share.

SBI's robust performance, it said, has been aided by strong loan growth and lower provisions. Opex has been running elevated due to high wage provisions affecting PPoP growth.

"NIMs have declined in recent quarters and the management has guided for broadly stable margins (3-5bp downside bias) as the bank has levers in place (CD ratio, MCLR re-pricing) to mitigate the impact of the rising cost of deposits. The asset quality performance remains strong with consistent improvements in headline asset quality ratios, while the restructured book remains under control at 0.6 per cent, along with lower SMA pool at 12bp of loan," the brokerage firm said.

Meanwhile, last month Care Ratings reaffirmed SBI's bonds rating. "The 'stable' outlook reflects Care Ratings' expectation that SBI will continue to maintain its steady growth in advances, deposits, and a healthy profitability profile over the medium term, while maintaining stable asset quality and comfortable capitalisation levels," the rating agency had said in its rationale.