Buy This Multibagger Public Sector Banking Stock For Gains Up To 26%: Axis Securities

Stock Outlook & Returns

The current market price (CMP) of the SBI on NSE is Rs 527.40 per share. The 52 week low of the stock is Rs 425. The stock hit a fresh 52 week high last month at Rs 578.50.
The shares of the company in the past 1 week and 1 month fell 0.99% and 4.69%, respectively.  Whereas, in the past 3 months, the shares surged by 8.03%. Over the past 1 year, the shares surged by 12.39%. The stock has given multibagger returns on long term investment. In 3 and 5 years, it gave 107.19% and 109.49%, respectively. Bank's ROE is 12.53%, which is better than its peers banking stocks.

Strong Loan Growth Performance

The bank's loan growth remained strong and was up 16%/3% YoY/QoQ in Q1FY23 compared to 11%/6% YoY/QoQ in Q4FY22. Wholesale book registered excellent growth and was up 11% YoY. Both SME and Agri were up 10% YoY each. The bank's retail book growth remained healthy at 19% YoY, led by growth across the segments - Home Loans (up 14% YoY) and Xpress Credit (up 32% YoY). With strong growth in retail, SME, and international loan book, advances in Q1FY23 grew by 16% YoY and 3% QoQ. Strong growth in advances led to NII growth of 13% YoY. 

Continued Strong Asset quality

For Q1FY23, Asset quality improved YoY with G/NNPAs declining by 140/80bps and remained stable QoQ at 3.9%/1%. Net Slippage Ratio improved by 120bpsYoY from 2.0% to 0.8%. However, the bank's gross slippages were up Rs 101 Bn QoQ. Restructured book of Rs 287 Bn remained at ~0.9% of the loans 

Non-banking subsidiaries to boost overall performance

Apart from the core banking, SBI's subsidiaries are expected to continue adding further value. The bank has a strong presence in various financial services operations such as credit cards, insurance (life and general), asset management, pension funds, investment banking, institutional, and retail broking, among others. Most of these financial services are generating stable returns and support the overall performance of the bank. 

Outlook

The bank's asset quality performance has been consistently ahead of expectations including eventually stressed asset accruals which resulted in credit cost normalization. We believe SBIN's unsecured lending profile is strong with over 90% of lending belonging to salaried government employees. Retail book traction remained healthy at 15%, supported by home loans and Xpress credit cards and we expect further improvement in the coming quarters. Currently, the Bank's market share in Home and Auto Loans is over 20%. Normalization in credit costs and improvement in the growth outlook should lead to strong return ratios with ROA/ROE of ~0.8%/14.5% over FY23-FY24E. 

Valuation & Risk

Amongst the PSU banks, SBI remains the best play on the gradual recovery of the Indian economy on account of its healthy PCR, robust capitalization, strong liability franchise, and an improved asset quality outlook. "We believe normalization in credit costs and improved growth outlook should lead to double-digit ROEs of ~14.5% over FY23-24E. In this backdrop, we maintain a BUY rating on the stock with a target price of Rs 665/share (SOTP basis core book at 1.3x FY24E and subsidiaries at Rs 190)," the brokerage said.

According to the brokerage, the key risk to the buy call would be a slower-than-expected recovery cycle.

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 making any investment decision.