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Most brokerages have cut their one-year target price on State Bank of India's (SBI's) stock after India's largest state-owned banking entity posted below par results for the January-March quarter (Q4FY22). Shares of the lender had dropped 5 per cent on Friday, after the bank announced its results, but bounced back 2.3 per cent to Rs 455 per share on Monday as against a 0.34 per cent rise in the benchmark S&P BSE Sensex.
Going ahead, analysts expect incremental stock price performance to be driven by pick-up in credit growth, and steady improvement in asset quality and return profile as the stock is trading at its long term mean valuation of 1.0x FY24E BVPS (core bank).
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Last Friday, State Bank of India reported its highest-ever quarterly net profit of Rs 9,114 crore for Q4FY22, rising 41.28 per cent compared with the same period last year.
The net profit, however, missed analyst estimates of Rs 10,183 crore, according to Bloomberg. The bank also reported its highest-ever yearly net profit of Rs 31,676 crore in FY22, which was up 55 per cent from FY21.
The lender's net interest income (NII) expanded by 15.26 per cent on year to Rs 31,198 crore in Q4FY22, while its non-interest income declined by 26.77 per cent year-on-year to Rs 11,880 crore.
Against this performance, global brokerage Nomura has cut the lender's target from Rs 650 to Rs 610 as it reported flat net interest margin (NIM) of 3.15 per cent. While loan growth of 11.6 per cent on year surprised positively, higher expenses, tepid pre-provision profit, and slight uptick in net non-performing loans (net of recoveries) worried the brokerage. It has cut its FY23/24 EPS estimate by 6 per cent/5 per cent, respectively, to factor in mark-to-market on the available for sale (AFS) book, offset marginally by higher NIM and lower provision.
UBS, too, has cut its EPS estimates on the stock for FY23/24 by 3.3 per cent/4 per cent but has maintained its target price at Rs 600. It believes the bank is well-placed cyclically due to stable asset quality, improving return on assets (RoA) and return on equity (RoE) profile, and inexpensive valuations (0.8x FY23 price to book value).
ALSO READ: SBI posts record quarterly profit of Rs 9,114 cr, misses Street estimates
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Back home, JM Financial has trimmed the lender's target price to Rs 590 from Rs 610 while Emkay Global has cut its target from Rs 680 to Rs 640 as the bank took a hit on investments (Rs 2,060 crore) on security receipts, along with slightly lower core banking fees. From a long-term perspective, Emkay Global believes SBI is now far better placed in terms of delivering sustained profitable growth, but trades at cheap valuations.
"SBI is reasonably capitalized and can shore up capital buffers by tapping capital market/unwinding value in subsidiaries. We Retain Buy with a revised target, valuing the core bank now at 1.3x v/s 1.5x FY24E ABV due to higher cost of equity (CoE) and subs/investments at Rs 207," it said.
Kotak Institutional Equities, meanwhile, maintains a 'BUY' rating with an unchanged fair value of Rs 700, valuing the stock at 1.3X (adjusted) book and 9X FY2024E EPS for RoEs in the range of 15 per cent. It, however, says disruptions from rate hikes are unlikely to cause an asset quality problem, but can pose a growth concern. "We still believe that credit cost is likely to go downwards while the rising interest rate environment would ease pressure on operating expenses, which includes very high retirement costs," it said.
Motilal Oswal Financial Services has cut its target price to Rs 600 as operating expense grew 1 per cent year-on-year and 12 per cent quarter-on-quarter (QoQ), resulting in an increase in the cost-to-income (C/I) ratio to 54.2 per cent. Pre-provision operating profit also came in 7 per cent below estimate at Rs 19,720 crore.
Lastly, ICICI Securities has maintained its target of Rs 673 on the stock as improved visibility on asset quality with 'new normal' credit cost of 1 per cent, credit growth of 13 per cent/15 per cent for FY23E/FY24E, asset resolution and stable NIMs may drive RoE to over 16 per cent by FY23E/FY24E.
