SBI Share Price: Brokerages Expect 25-35% Rise After The PSU Bank Earns Three-Fold Jump In Q1 Profit

Public sector lender, State Bank of India (SBI) shares showed a dull reaction to the three-fold rise in Q1FY24 profitability. Overall, the June 2023 quarter was stable. However, SBI shares ended at Rs 568.30 apiece, down by nearly a per cent on BSE during Monday's trade. However, the latest downfall creates a buying opportunity in this PSU Bank stock price and expects between 25% to 35% upside ahead.

SBI is the largest PSU bank in terms of market share. By the end of August 8, its market value stood at Rs 5,07,185.70 crore.

During the June 2023 quarter, SBI reported a net profit of Rs 16,884 crore, rising by 178.25% YoY or 2.78 times from a PAT of Rs 6,068 crore in the same quarter a year ago. Net Interest Income (NII) for Q1FY24 increased by 24.71% YoY, while domestic NIM for the quarter increased by 24 bps YoY to 3.47%.

As of June 30, 2023, SBI's gross NPA ratio stood at 2.76% down by 115 bps YoY, while net NPA came in at 0.71% down by 29 bps YoY. Provision Coverage Ratio (PCR) at 74.82% down by 23 bps YoY, PCR (including AUCA) improved by 127 bps YoY and stands at 91.41%. Also, the slippage ratio for the quarter improved by 44 bps YoY and stands at 0.94%, and further, the credit cost improved by 29 bps YoY to 0.32%.

Why buy SBI shares?

In a research note dated Monday, Gaurav Jani - Research Analyst, Prabhudas Lilladher said, "SBI saw a stable quarter; while core PAT missed PLe by 2.8% due to lower loan growth, NIM was largely in-line at 3.2% and asset quality was steady. The bank sounded confident of achieving a 15% growth in FY24E given (1) excess SLR of Rs4.0trn and (2) current capital can support the growth of Rs7trn. We are factoring a 13% CAGR in loans over FY23-25E as sustained corporate growth is imperative to achieve 15% overall growth. Reported domestic NIM came in at 3.47% and the bank would like to maintain this level of NIM for FY24E."

However, Jani's note added, "We are factoring a 5bps decline in overall FY24 NIM to 2.94% and NIM upgrade would hinge on MCLR book repricing and better loan growth. As SBI is focused on physical and digital expansion, we raise opex by avg. 3.7% for FY24/25E which would be offset by a reduction in provisions by avg. 33bps. We maintain multiple at 1.5x on core FY25E ABV. Retain 'BUY' with TP at Rs770."

Meanwhile, in its note, brokerage JM Financial said, "Loan growth was well-rounded across sectors and management guided for a growth of 14-15% going ahead. Deposit growth picked up at +12% YoY; Management indicated that they strive to maintain FY24 NIMs at levels similar to FY23 (i.e. 3%)."

Brokerage's note further said, " Given excess SLR of c.INR 4trn and an uptick in yields led by MCLR repricing should give incremental cushion to NIMs for SBI. Asset quality performance remains stable with controlled slippages at Rs 78.7bn with GNPL/NNPL at 2.76%/0.71% (-2bps/+4bps QoQ). We believe delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters driving moderate credit costs will drive incremental stock returns for SBIN."

"SBI's core fundamentals continue to be stable while delivery on the growth front along with sustained margins and controlled credit costs should drive movement in the stock. While the current CET1 level of 10.2% could be desirably higher, strong internal accruals and potential stake sales in subsidiaries (SBI Funds, SBI General Insurance) may unlock value for shareholders. Further, at current valuations, the capital raise will be BVPS accretive and thus we are not overly concerned. We value SBIN's core banking business at 1.2x FY25E BVPS to arrive at our revised SoTP-based target price of Rs 710. Maintain BUY," JM Financial said lastly.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns. in advises users to consult with certified experts before making any investment decision.