SBI Q2 Results Preview: PAT Likely To Jump 14.1% YoY; Asset Quality To Improve

Today, November 4, is the day State Bank of India (SBI), the largest lender in the nation, will release its September quarter results. SBI is anticipated to have an upsurge in net profit as advances continue to rise at a robust rate, with good CASA and more leeway for growth owing to a lower loan-to-deposit ratio (LDR).

According to Axis Securities, SBI is expected to post a net profit of Rs 15,133 Cr for the quarter ended 30th September 2023, marking a growth of 14.1% YoY from Rs 13,265 Cr reported in the same quarter of FY23. As per the brokerage, SBI's credit cost to remain stable and asset quality to improve in the quarter under review.

During Q2FY24, the bank's NII is likely to see modest degrowth as NIMs see minor contraction. Axis Securities said SBI's net interest income (NII) is likely to reach Rs 38,654 Cr in Q2FY24 witnessing a growth of 9.9% YoY from Rs 35,183 Cr in Q2FY23 but a degrowth of 0.6% QoQ from Rs 38,905 Cr stood in Q1FY24.

Shreyansh Shah, Research Analyst, StoxBox, "We expect the largest PSB - SBI to report a healthy set of numbers in Q2FY24. We believe that just like in Q1FY24, the bank's net interest income will likely see a marginal decline, with NIMs remaining stable primarily due to the imposition of I-CRR by the central bank and the high cost of funds. However, the net profit will be in mid-double digit, mainly driven by treasury gains and fee income, which will help the bank have the RoA of its targeted 1% plus mark. The deposit side is expected to show robust growth for the bank due to the withdrawal of Rs. 2,000 notes compared to advance growth, which will have stable growth due to high yields. There will be no concerns concerning the asset quality of the bank as it has improved significantly over the past few quarters, and we believe that the bank has made enough space for ECL provisioning, which will not lead to additional provisioning."

Kotak Equities anticipates 12% YoY growth in loans and a 10% YoY rise in NII. The firm predicted a 10-basis point quarterly fall in SBI's NIMs.

The bank's albeit higher operating expenses are likely to bring PPOP lower sequentially and key monitorable will be asset quality outlook and loan book traction.

Utkarsh Sinha managing director Bexley advisors a boutique investment bank firm, "SBI remains the bulwark of India's financial system and while lower than expectations, SBI's Q2 performance is still expected to be about 7% higher than the comparative period last year. SBI, in many ways, ends up being the barometer for India's economy, as the lender with the widest and deepest retail and MSME lending exposure. The slowing down of both revenue and profit growth are indicative of a broader macroeconomic growth reduction, which is a function of policy moves aimed at curbing inflation and the reversal of the near-zero interest rate regime of the past few years by RBI."

"SBI could outperform BOB on NIM given (1) higher CASA and unsecured share and (2) more headroom available for growth due to lower LDR at 71.4% vs 80.3% for BoB. Valuation gap between BoB and SBI has narrowed which should widen. Valuation is attractive at 1.2x on core FY25E ABV. Retain 'BUY' at TP of Rs770," said Prabhudas Lilladher in a statement.

"For SBI, we see RoA moderating slightly to ~1% (vs. 1.2% QoQ) due to slight pressure on NIM, opex and lower treasury gains," said ICICI Securities in a note.

Commenting on the consolidated Q2FY24 preview for the banking sector, the equity research analysts of Axis Securities said "The Banking sector will continue to deliver robust numbers driven by the sequential improvement in the credit growth for the Retail and SME segments. Moreover, the improvement in the asset quality trend is likely to continue for the quarter, which is likely to bring further confidence in the space. Focus during the quarter will remain on management commentary on the growth outlook as well as on the quantum of further margin compression as the cost of fund increase faster than the yield."

Ahead of declaring Q2 results, the shares of SBI closed with an upside gap of 1.23% at Rs 579.15 on Friday.