India's largest public sector bank State Bank of India (SBI) is set to report its Q3FY21 result on Thursday, February 4. The stock of the lender became analysts' darling after the bank's earnings, during the preceding two quarters, beat Street expectations by huge margins. A repeat this time may, therefore, lead to further re-rating of the stock.
Goldman Sachs, for instance, has a target price of Rs 383 on the stock as it believes investors are still pricing in around 60 per cent hit to its FY21E book value, which seems excessive. Besides, examples of valuation re-rating driven by ROA improvement for financial stocks globally support sentiment, it says.
HSBC, on the other hand, thinks SBI's strong balance sheet position (healthy provisions, high liquidity, strong liability franchise and low capital consumption) should help the bank navigate in an uncertain climate. It, too, has revised its target on the stock from Rs 285 to Rs 350.
The stock of SBI is quoting at Rs 335 apiece, having surged 21 per cent so far in calendar year 2021. In three months to December, the stock jumped 48 per cent on the NSE, as against a 24 per cent and 37 per cent gain, respectively, in the benchmark Nifty50 and Nifty PSU Bank indices, ACE Equity data shows.
For the quarter under review, here’s what investors need to track:
Net profit: Most analysts expect the PSB’s profit after tax (PAT) to decline anywhere between 15 per cent and 58 per cent on a yearly basis during the quarter under review. The lowest PAT estimate is by HDFC Securities, at Rs 2,360 crore, down from Rs 5,583.4 crore reported in Q3FY20. Sequentially, it would be a 48.5-per cent drop from Rs 4,574.2 crore clocked in Q2FY21.
Global brokerage Nomura, however, remains an exception and pegs PAT at Rs 6,406.3 crore, up around 15 per cent on year, and 40 per cent on quarter.
Operational performance: Consensus estimates peg the lender’s operating profit to remain flat on a YoY basis, with a few expecting it to decline by as much as 12 per cent. Global brokerage HSBC forecasts the operating profit (or pre-provision profit) to come around Rs 16,619.9 crore, down 9 per cent YoY, from Rs 18,222.6 crore clocked in Q3FY20. It stood at Rs 16,459.8 crore in Q2FY21.
Kotak Institutional Equities, however, expects it to grow 6 per cent YoY and 17.5 per cent QoQ to Rs 19,340.7 crore on the back of recovery in treasury income.
Loan growth and NII: Analysts expect SBI’s loan book to grow by 7 per cent on year and around 3 per cent quarterly. Motilal Oswal Financial Services pegs the value at Rs 23.5 trillion for the quarter under review, while deposits are pegged at Rs 35.4 trillion, up 23.5 per cent YoY. They were Rs 22 trillion, and Rs 31.1 trillion, respectively in the year-ago period.
Net interest income (NII) – or income derived by subtracting interest paid on loans from interest received on deposits – may remain subdued and could grow up to 3.4 per cent YoY to Rs 28,736.8 crore, says Nomura. It was Rs 27,778.8 crore in Q3FY20, and Rs 28,181.5 crore in Q2FY21.
“We expect slower growth in NII (4 per cent YoY) given the recent cuts in lending yields and deposit rates. Loan growth could be subdued at around 8 per cent YoY and net interest margin (NIM; core) unchanged sequentially at 3.1 per cent,” said a report by Kotak Institutional Equities.
Asset quality: Edelweiss Securities believes SBI’s asset quality may remain steady in the quarter, but recoveries could be limited. Excess provisioning might also be limited, curtailing credit cost, it said in its report.
MOFSL, however, pegs the gross non-performing asset (GNPA) ratio at 6.3 per cent for Q3FY21, up from 5.3 per cent in Q2FY21. NNPA is seen at 2 per cent, up from 1.6 per cent QoQ.
Overall, slippages may rise by 3 per cent YoY, while provisions may jump 46.5 per cent YoY and 5 per cent QoQ to Rs 10,624.2 crore.
Management commentary: HSBC would track the comments on the bank’s stressed exposures and outstanding loan restructuring; Nomura would watch out for proforma GNPAs, and segmental stress levels; KIE would focus on the quantum of restructured loans, and comments on resolution of few corporate NPLs.