Largest PSU Bank Share: Six Brokerages Recommend BUY On SBI Stock After Q3, Potential Upside Of 16% Ahead

Despite dull Q3 earnings, a total of six brokerages are optimistic about the largest PSU lender, State Bank of India (SBI). Although Q3 PAT declined by double-digits, it was SBI's better-than-expected NII driven by loan growth and better interest margin that restored the faith of investors as well. SBI's share price last week touched a new record high of Rs 728.20 apiece. There is the potential for a nearly 16.3% upside in SBI shares ahead.

On February 9th, the SBI share price ended at Rs 724.25 apiece, up by 3.6% after hitting a record high of Rs 728.20 apiece during the trading session. Currently, SBI's market cap is at Rs 6,46,365.02 crore.

In Q3FY24, SBI registered PAT of Rs 9,164 crore, down by 35.49% YoY and 36.05% QoQ. While net interest income (NII) stood at Rs 39,816 crore, up marginally by 4.59% YoY and 0.80% QoQ. In the quarter, Credit grew at 14.38% YoY with Domestic Advances growing by 14.47% YoY, while Whole Bank Deposits grew at 13.02% YoY, out of which CASA Deposits grew by 4.48% YoY. CASA ratio stands at 41.18% as of 31st December 23.

Further, in Q3FY24, the gross NPA ratio at 2.42% improved by 72 bps YoY. Net NPA ratio at 0.64% improved by 13 bps YoY. The slippage Ratio for 9MFY24 improved by 5 bps YoY and stands at 0.67%. The slippage Ratio for Q3FY24 increased by 17 bps YoY and stands at 0.58%.

1. BOB CAPS Target Price Of Rs 842 On SBI:

BOB CAPS target price is the highest among other brokerages on SBI.

Healthy business growth along with stable margins and asset quality is likely to boost profitability. We introduce FY26 forecasts and expect the bank to maintain NIM at 3% and deliver ROA/ROE of 1.1%/17% by FY26. On rolling valuations forward to FY26E, our new SOTP-based TP stands at Rs 842 (vs. Rs 747), set at an unchanged target P/ABV multiple of 1.3x for standalone operations using the Gordon Growth Model and adding in Rs 236/sh for subsidiaries - BUY.

2. Motilal Oswal Target Price Of Rs 800 On SBI:

SBIN reported a mixed quarter as one-off pension provisions impacted earnings, whereas high wage provisions were partially offset by a decline in loan loss provisions. Operating expenses thus remained high, thereby affecting PPoP growth. The management anticipates lower wage provisions at INR54b in 4Q. Consequently, we expect improvement in operating profitability in FY25. Margins contracted 7bp QoQ to 3.22% in 3Q; however, the bank expects margins to remain broadly stable, with a potential 1-2bp decline.

The bank has various levers such as CD ratio and MCLR repricing to keep margins stable. Business growth remains robust, with signs of a recovery in the corporate segment. Asset quality remains healthy as the GNPA ratio improves further and the restructured book is well-managed at 0.5% of advances, while the SMA pool stands at 12bp of loans. We estimate SBIN to deliver RoA/RoE of 1.1%/19.6% in FY25. We maintain our BUY rating with an unchanged TP of INR800 (1.2x Sep'25E ABV + INR 218 from subsidiaries).

3. JM Financial Target Price Of Rs 800 On SBI:

SBI's core fundamentals continue to be stable while delivery on the growth front along with sustained margins and controlled credit costs should drive rerating of the stock. Mgmt expects CET1 to reach ~11% by Mar'24 (from current levels of 9.1%) driven by strong profitability in FY24E (currently considering 9MFY24 PAT, CET-1 stands at 10.4%) while they also remain open to raising funds in case of strong growth going forward. We value SBIN's core banking business at 1.2x FY26E BVPS to arrive at our SoTP-based target price of INR 800. Maintain BUY.

4. ICICI Securities Target Price Of Rs 780 On SBI:

We cut FY24E PAT by ~11%, incorporating retirement one-off and elevated wage bipartite provisions in Q4FY24. We estimate SBI to report

5. Prabhudas Lilladher Target Price Of Rs 770 On SBI:

SBI reported a good quarter; while NII beat due to better NIM and loan growth. Adjusted for one-time impact (Rs71bn) of pension liability and benefit of exgratia, core PPoP/PAT was 4.8%/7.0% ahead of PLe. Credit growth at 5.2% QoQ was best-in-class. While bank guided for 14-15% loan growth, we expect SBI to grow at 13% CAGR over FY24-26E due to tight system liquidity. We have cut loan growth by 1% for all coverage banks except SBI, given upside risks as the following levers may support credit offtake viz. (1) low LDR at 74% (2) adequate LCR at 131% and (3) sufficient CET-1 at 11% (post RBI norms on re-classification of investments).

Staff cost for FY24E may be Rs773bn (+35% YoY) due to wage revision impact of Rs180bn. There are downside risks to our staff cost estimate for FY25E at Rs800bn (+4% YoY). We remain positive on SBI and keep our multiple unchanged at 1.4x on Sep'25E ABV and maintain SOTP based TP at Rs770. Retain 'BUY'.

6. Emkay Global Target Price Of Rs 750 On SBI:

SBI's CET-1 stands low at 10.4% (incl. 9M profit). Thus, the bank has now indicated to raise capital soon. We have trimmed our FY24 estimates by 6%, factoring in higher staff cost, but we have revised upwards our FY25/26 estimates by 3%/9% due to better margins, treasury performance, and sustained lower LLP. We retain BUY with a revised TP of Rs750/share, rolling forward on Dec-25E standalone Bank ABV, and have revised subsidiaries/investments value at Rs210/share (vs. Rs185). Key risks: Severe macro dislocation and a prolonged elevated-rate environment hurting margins and leading to growth/asset-quality disruption.

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.