SBI dips 3% on profit booking post June quarter results

Gradual improvement in margin, steady operational efficiency coupled with adequate provision buffer to aid earning momentum, analysts said.

Shares of State Bank of India (SBI) dipped 3 per cent to Rs 514 on the BSE in Monday’s intra-day trade on profit booking after the public sector bank reported 6.7 per cent year-on-year (YoY) decline in its net profit at Rs 6,068 crore for the quarter ended June 2022 (Q1FY23) due to a sharp fall in non-interest income, as mark-to-market losses rose. The lender had reported a net profit of Rs 6,504 crore in the corresponding period of the last year (Q1FY22).

Net interest income of the lender grew 13 per cent YoY to Rs 31,196 crore in Q1FY23, on the back of improved credit offtake in all segments and improvement in asset quality, but non-interest income was down 80 per cent during the same period to Rs 2,312 crore as loss on investments was to the tune of Rs 6,549 crore.

The asset quality saw improvement with gross non-performing assets (NPAs) of the lender standing at 3.91 per cent at the end of the June quarter, down 141 bps YoY and 6 bps sequentially. Similarly, net NPAs were down 77 bps YoY and 2 bps sequentially to 1 per cent during the same period. READ MORE

In the past three months, SBI has outperformed the market by gaining 7 per cent, as compared to a 4.7 per cent rise in the S&P BSE Sensex. On a one-year time frame, the stock rallied 17 per cent as against 7 per cent gain in the benchmark index.

Brokerages maintain ‘Buy’ rating on SBI with a target price in the range of Rs 615 to Rs 660.

“We believe overall strength in lending franchise, provision buffers and healthy guidance are positives. Improving return ratios with RoE at ~12 per cent and RoA at ~0.7-0.8 per cent, offers long term comfort on the stock,” analysts at ICICI Securities said.

The credit growth guidance of ~14-15 per cent on the back of healthy demand pipeline to aid business growth and overall performance. Gradual improvement in margin, steady operational efficiency coupled with adequate provision buffer to aid earning momentum. Improving RoE trajectory to aid improvement in valuations. The continued traction in customer & business accretion via “Yono” and unlocking of subsidiaries value to act as positive surprise are the key triggers for future price performance, the brokerage firm said.

A higher than expected treasury loss resulted in a marginal cut to our FY23 earnings estimate. However, we expect SBI to report a strong earnings progression right from Q2FY23, resulting in 29 per cent earnings CAGR over FY22-24. We estimate a RoA/RoE of 0.9 per cent/17 per cent in FY24. SBI remains one of our convictions Buy in the sector, analysts at Motilal Oswal Financial Services said.

With accelerated rate hikes and a sufficient liquidity cushion, the brokerage firm CLSA still expects its margin to improve through FY23CL. Bond losses were higher than expected and drive some of our earnings changes (c.4 per cent cut for FY23CL) but credit costs continue to undershoot our expectations, the brokerage firm said.

“We expect an ROE of c.15.5 per cent-16 per cent over FY23-25, and with a favourable credit cycle we see low risk to a +15 per cent ROE. We thus increase our target price from Rs615 to Rs660, mainly driven by subsidiary price targets. SBI outperformed peers by >30ppts over the past 18 months and its current 1.1x 1-year forward book valuation is getting closer to fair levels now,” CLSA said.