Buy This Large PSU Bank Stock For 30% Return, Balance Sheet Crosses Rs. 50,258 Bn-mark: KR Choksey

Renowned brokerage firm KR Choksey suggests investors buying the stocks of State Bank of India Ltd. The core operating profits of the bank, excluding the trading income and MTM losses, increased by 14.4% YoY in Q1FY23. SBI reported a balance sheet growth of 10.3% YoY, crossing Rs. 50,258 Bn mark for the first time as of June 30, 2022. The bank's credit book as of June 30, 2022, stood at Rs. 28,152 Bn, a growth of 15.8% YoY.

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of State Bank of India Ltd. is Rs. 521. KR Choksey has estimated a Target Price for the stock at Rs. 790. This stock has the potential to give a 52% return, in the upcoming 1 year. This is a small-cap stock with a market capitalization of around Rs. 46,41,691 mn.

Stock Outlook
Current Market Price (CMP)	Rs. 520
Target Price	Rs. 680
Potential 1 year return	30.07%
52 week high share price	Rs. 549.00
52 week low share price	Rs. 401.25

Net Interest Income (NII) for Q1FY23 increased by 12.9% YoY, while it was flat QoQ at Rs. 3,11,959 Mn. NIMs stood at 3.23% in, Q1FY23 vs 3.15% in Q1FY22. The fee income for Q1FY23 grew by 17.9% YoY. SBIN has registered net profit of Rs. 60,681 Mn in Q1FY23. This represents a decline of 6.7% YoY (-33.4% QoQ). The decline is owing to lower non-interest income during Q1FY23. The bank's Gross NPA ratio stood at 3.91%, an improvement of 141 bps YoY (improved 6 bps QoQ). Net NPA ratio stood at 1.0% as of June 30, 2022, against 1.02% as of March 31, 2022.

The operating profit of the PSU Bank declined by 32.8% YoY and 35.3% QoQ at Rs. 1,27,526 Mn in Q1FY23, impacted by higher MTM losses on the investment book.

KR Choksey: Advantages Of The Stock

Commenting about the stock, KR Choksey said, "We expect the slippages to remain moderate with healthy recoveries & upgrades going ahead to bring stability to the asset quality. SBI will continue to see strong traction on the credit growth front, led by improvement of the corporates CAPEX cycle and robust momentum in retail, especially home loans & Xpress credit segment. SBI has been striving to strengthen its overall balance sheet and improve its CASA mix to maintain its margins at a sustainable level. On the asset quality front, we saw further improvement in the ratios with the moderation of slippages and healthy upgrades and recoveries, resulting in healthy earnings growth over the next two years."

"We believe SBIN is better placed than its PSU peers to manage the uncertainties, given its size & leadership in the banking system. We have factored a CAGR of 29% in profits growth while advances growth of 13% CAGR over FY22-24E. We expect its ROA to improve to 0.9% by FY24E and ROE to ~15.1% by FY24E. We value the bank at 1.4x FY24E P/ABV on an ABV of Rs. 387.6 per share, and the subsidiaries value at Rs. 137 per share," the firm added, upgrading the target price for the stock.

Company portfolio

The retail segment saw a strong growth momentum reporting a growth of 18.6% YoY. Within the retail segment, home loans registered a growth of 18.8% YoY, while Xpress Credit grew 32.4% YoY. The advances showed a double-digit growth led by retail loan growth of ~15% YoY with strong momentum in the Xpress Credit segment & home loan segment. The asset quality has improved, with NNPAs at 1.0% as of June 30, 2022. Despite a fall in the provisions for the quarter, the profitability took a hit owing to MTM losses on the investment book of the bank. The bank has made additional provisions for the movement of bond yields from 7.1% to 7.45%.

Disclaimer

The above stock was picked from the brokerage report of KR Choksey. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.