Buy This Bluechip Banking Stock For 23% Upside, Says This Brokerage Firm

Brokerage firm, KR Choksey is bullish on the stock of SBI and has suggested investors to buy the same. The stock closed at Rs 431 this week and the brokerage has a price target of Rs 531 on the stock.

Healthy performance of State Bank of India

According to KR Choksey, Net Interest income for the first quarter of FY22 grew 3.7%, year-on-year with a 9 basis points dip year-on-year in Net Interest Margins due to some pressure seen on the yields and decline in the domestic CD ratio by 2% YoY.

The bank expects to see improvement in Net Interest Income with healthy growth in the loan book going forward. "Other income saw a jump of 24% year on year on the back of foreign exchange gains and one-off income related to recovery. This resulted in a strong growth on PPOP of 15% YoY at Rs 18,975 crores. The C/I ratio improvement at 51.9% in Q1FY22 from 52.3% in Q1FY21 and 54.5% in Q4FY21. The net profit for the first quarter of of FY22 stood at Rs 6,504 crores, a growth of 55% on the back of higher operating profits and lower provision by 20% Yo," KR Choksey has said in its report.

"The first quarter of FY22 was a stable quarter on operating terms for State Bank of India. Loan book growth for the quarter was modest YoY and down sequentially. Asset quality was hit by the second wave of Covid in line with the peer performance. The Bank's performance is showing a gradual improvement quarter by quarter. The restructuring of book is underway. The strong deposit franchise, large customer size and loan book mix augurs well for the bank. It is, therefore, better placed than its PSU peers to weather further crisis especially related to the pandemic," the brokerage has added.

It has factored a compounded annual growth rate of of 48% in profits over an advance CAGR of 9% over FY21-23E.

"We expect its Return on Assets to improve to 0.8% by FY23E and Return on Equity to improve to 14.5% by FY23E. We value the bank at 1.4 times FY23E P/ABV (earlier 1.2x) on an ABV of Rs 325, taking the SOTP value to Rs 532 per share (earlier Rs 450 per share), implying a potential upside of 20.4% over the current market price. Accordingly, we upgrade the rating on the shares of SBI to a "BUY," the brokerage has said.

Disclaimer

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