State Bank of India shares in early trade on Thursday (November 5, 2020) rallied close to 7% to Rs. 220.95 per share on the BSE after the bank posted healthy net profit numbers for the September quarter of FY21.
Much of the jump in net profit of the country's leading state-run bank by a sharp 52% YoY is attributed to a healthy growth in the bank's retail loan segment and lower provisioning in respect of bad loans. "Retail will be our major lever for growth going forward as well," said Dinesh Khara, the newly-appointed chairman of the bank said. Besides he added that aggregate credit growth is estimated at 8-9% in the financial year 2021.
Asset quality at the bank on a sequential basis improved with GNPA down 16 bps to 5.25% on a quarter on quarter basis. If not for the standstill by the Supreme Court on NPA classification, GNPA would have come in higher at 5.88%, implying additional slippages to Rs. 14338 crore.
Brokerage firm Sharekhan in its report post SBI Q2 results opined that the bank's Q2FY21 numbers largely met expectations, wherein operational numbers were in-line, but asset quality performance was mixed. Asset quality picture appears manageable, PCR of 88.2% is a cushion for investors; legacy assets are well-provided for; margins expected to be stable.
SBI currently trades at 0.8x / 0.7x its FY2022E / FY2023E book value, which we believe are reasonable. While we are cautious on PSU Banks, we find SBI better placed as compared to its PSU bank peers (with respect to asset quality, capitalisation, underwriting strength etc) with business strengths (being the largest bank in India), with consistent and reasonable margin cushions. The brokerage firm has a 'Buy' recommendation on the stock with an unchanged SOTP-based price target of Rs 280.
Further other brokerages too have upgraded the stock of SBI with a target price of Rs. 300 plus. CLSA has reiterated a 'Buy' recommendation on the stock with a revised target price of Rs. 330 from the earlier Rs. 300 per share. The global brokerage expects SBI to deliver a 9.7%/11.9% return on equity in FY22/23.