Why Are Analysts Bullish On SBI After Q3?

On Friday, shares of the State Bank of India (SBI) closed 11.24% high and even hit a new all-time high of Rs 408.35 in intraday trade as analysts hiked their target prices on the stock post its financial results for the December-ended quarter.

The bank's market cap crossed the Rs 3.5 trillion mark for the first time ever.

A day earlier, the public-sector bank had reported a 6.9% fall in its standalone profit at Rs 5,196.22 crore for the third quarter of the financial year 2020-21, due to higher provisions and slower NII (Net Interest Income) growth.

Why have analysts turned bullish on SBI?

In a note titled "The elephant has started dancing", Macquarie said, "SBI's 3QFY21 asset quality performance was very strong, as seen in its much lower slippages, fewer restructured assets, stable margins, and improving return on assets."

The brokerage also raised its 12-month price target for the stock to Rs 450, raising earnings forecasts and assigning a higher trading multiple.

SBI said that its gross non-performing assets (NPA) as a percentage of gross advances was at 4.77% in the December-ended quarter, a 51 basis points decline and net NPA at 1.23%, down 36 basis point from the previous quarter. All segments of loan books reported a decline in NPA QoQ with NPA from the corporate book down 35 basis points and retail 62 basis points.

On a proforma basis without reference to the Supreme Court interim order, the gross NPA would have been at 5.44% and net NPA at 1.81% in Q3FY21.

As for fresh slippages, they were reported sharply lower at Rs 237 crore for the December-ended quarter when compared to Rs 3,085 crore in September 2020, but proforma slippages for the quarter were at Rs 2,073 crore and proforma slippages for 9 months of FY 21 at Rs 16,461 crore, said SBI.

Slippages ratio declined significantly to 0.04% in the third quarter of 2020-21, compared with 0.46% in the second quarter and 2.94% in December 2019.'

CLSA has increased its target price on SBI to Rs 560 per share from Rs 385 earlier, in a note titled "Breaking all barriers" wherein it said that the bank's retail asset quality has been impeccable over the last decade and with the end of the corporate credit cycle, SBI's asset quality is finally delivering better asset quality outcomes when compared to private banks.

"We revise up our earnings by 15-26% and now expect ROEs (return on equity) of 14 per cent by FY23. SBI has been a consistent market-share gainer over the last decade and now with a dual benign credit cycle from FY22, we now expect SBI to rerate materially beyond 1x book," the brokerage added.

"SBIN reported robust operating performance in a challenging environment. Loan growth is showing a healthy recovery in retail portfolio, with disbursements in many business segments surpassing pre-Covid levels," said Motilal Oswal while raising its target price to Rs 475.

Credit Suisse has raised the target price by 70.4% to Rs 460 from Rs 270 while Morgan Stanley raised its target price by 50% to Rs 525 from Rs 350.

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