SBI Shares Have Fallen 13% This Week; Good Time To Buy?

Shares of SBI (State Bank of India) have fallen as much as 13 percent from its opening price of Rs 195.15 on 8 June to Rs 169.80 on 12 June. On Friday alone, the stock fell 4.15 percent on global market cues and announcing its board's approval to divest 2,10,00,000 equity shares constituting 2.1 percent stake in its subsidiary SBI Life "to achieve Minimum Public Shareholding of 25 percent" through an offer for sale process through the Stock Exchange mechanism.

This announcement was made after market hours on Thursday.

On the same day, during market hours, the public sector lender said that its board has approved long term fundraising plan in single/multiple tranches up to US$ 1.5 biilion "through public offer and/ or private placement of senior unsecured notes in US Dollar or any other convertible currency" during the financial year 2020-21. Post the announcement, shares of SBI fell 2.5 percent to an intraday low of Rs 183.05 on 11 June.

However, brokerages have maintained a 'buy' rating on the stock after the bank reported over four-fold jump in its net profit on 5 June at Rs 3,580.81 crore for the March quarter when compared with Rs 838.40 crore in the same quarter last year. However, its profit included an exceptional item, that is a net profit of Rs 2,731.34 crore on the sale of a certain portion of its stake in its subsidiary SBI Cards & Payment Services Limited during the quarter under review.

"SBIN reported a modest quarter with weak NII growth (affected by higher interest reversals on Agri slippages), although stake sale gains from its cards subsidiary supported earnings. Slippages were at a four-quarter low, supported by the RBI dispensation, resulting in improved asset quality. The moratorium book at ~23% of total loans surprised positively," said Motilal Oswal's research report on SBI.

The brokerage has cut its estimates for FY21/FY22 by 17%/16% as it builds-in "a slight moderation in margins/fee income and higher credit cost" and projects RoA/RoE of 0.5%/9.5% by FY22. It has maintained a 'buy' rating on the stock with a price target of Rs 280.

JM Financial also has a buy rating on SBI with a 12-month target price of Rs 220.

SBI's moratorium levels were lower than market expectations, with 23 percent (by value) of term loans (excluding agriculture, IBG) under moratorium as of 31 May, the brokerage said. Further, the proportion of working capital (WC) loans which have availed of interest deferral is at ~20 per cent of the WC loan base.

The management has highlighted SBI's strong salaried customer base dominated by employees from PSU and other government entities playing a key role behind SBI's lower moratorium numbers.

According to JM Financial, SBI's liability franchise remains unparalleled (CASA ratio of 45.2 percent) and recent deposit rate cuts indicate cushion to margins (though excess liquidity could create near-term pressures).

Edelweiss also has a buy rating on SBI with a higher price target of Rs 415.

SBI's Q4 profit after tax is, however, was lower than the brokerage's estimate of Rs 35.8 billion due to softer core (lower NIM, higher opex) and higher provisions. The quarter's defining feature was low slippage of 1.5 percent, it said. Despite raising coverage to over 65 percent now leads to NNPLs of 2.24 percent, a commendable feat, according to the brokerage.

It further said that the core operating performance was softer given lower NIMs (interest income reversal) and higher opex (up 9 percent quarter on quarter).

The brokerage's prognosis on systemic asset quality is bleak and says that the long-term costs of economic dislocations remain known unknowns. Moreover, while moratorium looks restricted at sub-25 percent of term loans (volume terms), further moratorium applicable to working capital loans and impact of applicability extension (by three months) need monitoring, says the brokerage.

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