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Brokerage Is Bullish On This PSU Banking Stock, Suggests Buy For 41% Potential Upside

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Axis Securities maintains a buy call to the State Bank Of India for a target price of Rs 665 per share. According to brokerage, FY22 has been a reassuring year for SBI as the bank continues to improve its overall operating performance with a stronger balance sheet and improved asset quality. Despite multiple headwinds, SBI managed to steer through the pandemic and delivered a strong credit growth revival in FY22, largely driven by excellent growth in its retail segment, a sharp reduction in slippages, and robust asset quality. The bank's focus on high-quality customers across retail, SME, and corporate along with building a more granular book enabled it to strengthen its overall operating and balance sheet performance over FY18-22.

 

Stock Outlook

Stock Outlook

On 04 July 2022, the stocks of SBI closed at the Current Market Price (CMP) of Rs. 473.45 per share, while it was opened at Rs 466.85 per share. The stock on 23 August 2021, hit the 52 week low level at Rs 401.25 per share, while the 52-week high it touched on 07 February 2022 at Rs 549 per share. The PE ratio of the stock is Rs 11.69, while the PB ratio is 1.32. EPS-TTM is Rs 40.52. The market cap of the stock is Rs 4,22,535 crore. It is a large-cap stock.

CMPTarget PricePotential Gains
Rs. 473.45Rs. 66541.00%

Considering the brokerage's estimated target price of Rs. 665 per share, investors can expect potential gains of 41%, if the stocks are brought at the CMP of Rs 473.45 per share.

Returns

1-Year3-Years5-Years
11.56%28.87%73.42%

 

Financial and Operational Performance
 

Financial and Operational Performance

The bank's retail portfolio reported strong growth, majorly driven by growth in Home loans and xpress credit cards, which resulted in NII growth of 9% YoY to Rs 1,207 Bn from Rs 1,107 Bn in FY21. While Non-interest income was supported by the growth of fee income, it was dragged down by treasury income. Its Other Income stood at Rs 405 Bn in FY22 as against Rs 419 Bn in FY21. Operating expenses went up due to an increase in overhead expenses, which were majorly driven by business development expenses. On a positive note, despite the rise in the operating expenses, the bank's Cost to Income ratio improved to 53.3% in FY22 from 53.6% in FY21 along with decent growth in NII. PPOP increased to Rs 752 Bn in FY22 from Rs 700 Bn in FY21, registering a growth of 7.4% YoY. With strong collection and recovery efforts, better asset quality led by a fall in provisions during the year, and growth in advances, the bank reported a healthy growth in PAT which increased to Rs 317 Bn in FY22 from Rs 204 Bn in FY21.

Asset Quality

Asset Quality

The bank continues to positively surprise on the asset quality front with slippage down by 12.4% YoY at Rs 250 Bn, restructured book at 1.1%, and significantly lower SMA book of Rs 35.4 Bn, down 69% YoY from the levels of Rs 115.2 Bn in FY21. There has been nothing unusual observed in the behaviour of the restructured book for FY22. The G/NNPA at 3.97/1.02% for FY22 improved 101/48bps from the levels of 4.98/1.5% in FY21. The bank has shown notable strength by continuously improving its G/NNPA since 2018 and its provision coverage ratio has improved by 416bps from FY21 levels to 75.04%, which looks reasonable.

Balance Sheet Review

Balance Sheet Review

The bank's Capital Adequacy ratio increased by 9bps from 13.7% in FY21 to 13.8% in FY22 and Tier 1 capital remained stable at 11.4%, representing a strong capital base against unforeseen risk and stressed pool of assets. Moreover, its RWA to total assets increased by 10bps from 49.6% in Mar'21 to 49.7% in Mar'22. ROA and ROE, too, continued their strong growth momentum, which stood at 0.67% and 13.9% respectively.

Strengths & Growth Drivers

Strengths & Growth Drivers

Key Competitive Strengths

  1. Strong unsecured lending profile with over 90% to salaried government employees.
  2. Strong market presence in Home and Auto Loan.
  3. High-quality wholesale loan book with more than 75% of corporate loan portfolio rated A and above and ~45% of corporate loans towards government undertakings and PSUs.

Growth Drivers

  1. Persistent Focus on digital-led growth.
  2. Continuous focus on Retail Finance Book.
  3. Strong Balance Sheet Position to support growth.
Brokerage suggests buy for a target price of Rs 665 per share

Brokerage suggests buy for a target price of Rs 665 per share

The bank's asset quality performance has been consistently better than which resulted in credit cost normalization. "We believe SBIN's unsecured lending profile is strong with >90% for salaried government employees. Furthermore, retail book traction at 15% remains healthy, supported by home loans, and Xpress credit cards, and we expect further improvement in the upcoming quarters. Currently, the bank's market share in Home loans and Auto Loans is over 20%. Among PSU banks, SBI with its healthy PCR, robust capitalization, a strong liability franchise, and an improved asset quality outlook, remains the best play on the gradual recovery of the Indian economy. We believe normalization in credit costs and improved growth outlook should lead to double-digit ROEs of ~14-15% over FY23-24E. We maintain BUY on the stock with a target price of Rs 665/share (SOTP basis core book at 1.3x FY24E and subsidiaries at Rs 185), implying an upside of 45% from the CMP," Axis Securities has said.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

Story first published: Tuesday, July 5, 2022, 8:33 [IST]
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