State Bank of India shares is at a lifetime high of Rs 433, surpassing its previous record high of Rs 426 hit on Feb 18, 2021. Most analyst that have researched the State Bank of India believe that there is more significant upside that is possible on the SBI shares. Here are 3 reasons why SBI stock is rallying.
Quarterly numbers were outstanding
Several brokerages have termed the results for the quarter ending March 31, 2021 as superb. "State Bank of India's 4QFY21 results has been nothing less than spectacular. The bank reported 4QFY21 slippages of just Rs 54.7 billion (a 20 quarter low; surprisingly comparable to other Private Banks), thus taking total slippages for FY21 to Rs 285 billion (1.2% of loans), while restructuring book stands controlled at 0.7% of loans," Motilal Oswal Institutional Equities said in a report.
An Emkay Global Financials report had a similar view. The broking firm said, "Q4 was an extremely strong quarter, with 9% PAT beat at Rs 64.5 billion, better-than-expected asset-quality performance," the broking firm said. On most parameters the bank reported numbers that were encouraging according to brokerages, including foreign brokerages.
Price targets on the stock hiked
While several brokerages have hiked the target price on SBI, Motilal Oswal has set a target of Rs 530, while Emkay Global has set a price target of Rs 600 on the stock.
"We expect it to deliver FY22E/FY23E RoE of 13.9%/15%. We maintain our BUY rating with a revised target price of Rs 530 per share (1.1x FY23E ABV+INR187/share from subsidiaries). SBIN continues to remain among our top Buys in the sector," Motilal Oswal has said.
"Retain Buy/overweight in EAP with a sharp revision in target price to Rs 600 (Rs 460 earlier), valuing core bank at 1.4x FY23E ABV (1x earlier) and subs/investments at Rs 186 (Rs 172 earlier), leading to a strong 50% upside. SBI is our second top pick, along with ICICI, and better-than-expected growth trajectory should provide further upside to its earnings/valuations," Emkay Global has said.
Improving asset quality
Clearly, it is the dropping non performing assets that has also attracted the attention of investors.
The gross non performing assets of the bank fell 15% in FY21 (43% decline over the past three years), while the coverage ratio has increased to 71% at present from 40% four years back, Motilal Oswal report has noted.
"Gross non performing asset at 5% vs. 5.4% in Q3 and lower RSA pool at 0.7% of loans) and a healthy specific PCR (71%), coupled with a reasonable Covid buffer at 25bps," Emkay Global has said. However, one will have to wait and watch for the impact of the second wave of the Covid-19 on the first quarter 2021-22 results.
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