1:10 Stock Split: PSU SBI Rises 400% In Post-Covid Era, Nears All-Time Highs; Is It Next HDFC Bank?

India's largest PSU stock, State Bank of India (SBI) was among the top gainers on BSE and NSE during Friday's trade. The stock neared its all-time high levels. The upbeat performance comes after brokerage Kotak Institutional Equities recommended buying SBI for a target price of Rs 850 ahead. Kotak believes SBI is well-positioned to handle near-term concerns. Notably, SBI is a multi-bagger in the long term. A stock that once went ex-split in the ratio of 1:10 has made an impressive journey, multiplying investors' money and the number of shareholding.

SBI has given returns to the tune of 177% in 5 years. SBI's share price is nearly 3-times higher than what it was before the ex-split. But in the post-pandemic era, SBI has given more than 400% returns, and the stock split will play a huge role for long-term investors.

SBI Share Price:

SBI stock price on Friday rose by 1.20% to hit an intraday high of Rs 758.35 apiece on BSE. Its market cap is over Rs 6.73 lakh crore. SBI is currently near its highest price level of Rs 777.50 apiece.

While it currently traded up by 51.11% from its 52-week low of Rs 501.85 apiece on BSE.

In a year, SBI shares have rallied by 41% so far on BSE. While SBI's 5-year performance is up by 176.79% on BSE as of now.

Those investors who have held SBI shares since before its first stock split, hold huge gains. Even the ones who bought SBI shares after its ex-split at a cheaper rate are multi-baggers in the stock.

SBI Stock Split Charm:

While SBI has never announced bonus issues up till now, it is among dividend-paying PSU stocks. Since July 2001, the bank delivered up to 22 dividends. But SBI up till this date has only turned ex-split once.

Since November 20, 2014, SBI's face value is at Rs 1. The bank turned ex-split for a ratio of 1:10. The face value of Rs 10 was trimmed to Rs 1.

If you had invested Rs 1 lakh in SBI before its stock split. Then you would be holding some 344 shares of SBI at a price band of Rs 291.14 apiece as of November 19, 2014. Adjusting to the stock split, your number of shares will rise to 3,440 equity shares in SBI after November 20, 2014.

The investors who stayed throughout the stock split and have not modified their portfolio in SBI up till now, are in for a treat. Because now their 3,440 equity shares will be valued at Rs 26,08,724 (at Rs 758.35 on March 1, 2024). That's over 26 times the returns from pre-stock split levels.

Notably, in 10 years, the lowest price level of SBI touched was of Rs 148.30 apiece recorded on December 2, 2016. From this level, SBI shares are currently up by 411%.

And during the pandemic period, SBI still managed to give over 400% returns. So new investors who missed the stock split, also enjoy massive returns. In the past five years, from March 1, 2019, to date, the lowest price level that SBI touched was Rs 149.55 apiece on May 2020, during the first wave of Covid. But since then, the stock has made tremendous jumps to of 407.08% as of now.

In the near term, SBI has the potential for over 12% upside ahead.

Kotak Institutional Equities Target on SBI:

In the latest research note, analysts at Kotak Institutional Equities said, "We maintain a BUY on SBI-our preferred pick, despite its recent performance. The bank has withstood most concerns, with negligible impact on earnings. We do not see a specific tailwind that can cause a re-rating in the short term, but we are relatively comfortable with building a lower credit cost, as a key argument. Outperformance is likely with other public banks, given the sharp convergence in multiples. FV revised to Rs850 (from Rs760)."

The analysts believe SBI has done better than feared on most issues that could have had a negative earnings impact. These issues could be specific conglomerate exposure, ECL provisions, MTM losses, unsecured loan growth, wage settlement and CAR (including an RWA increase). Addressing these has probably resulted in the current outperformance. The tendency of investors appears to be conservative by looking at the actual outcome before turning positive on the bank.

They added, "A low credit cost, driven by low slippages, has enabled better preparedness to handle any potential stress; this has been a key differentiating factor in this cycle. A few more quarters of stable performance on unsecured loans can give more comfort to the bank's underwriting."

Kotak's analysts are expecting SBI to deliver steady performance, adjusting for various one-offs. Loan growth is likely to be lower than the industry average. The positive outcome of low CAR is that growth is likely to be of better quality. Also, they expect NIM at elevated levels on a through-the-cycle basis, as it is the primary revenue source.

However, these analysts do not expect immediate normalization of credit costs (excluding ECL provisions).

Accordingly, Kotak's analysts said, "We look at SBI through the lens of two sets of banks-(1) outperformance with other public banks and (2) outperformance with large private banks. The premium at which SBI is currently trading to BoB and with other mid-tier public banks has declined sharply and is closer to the best of times. On the other hand, SBI's discount with HDFC Bank has narrowed sharply as well."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or 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.