SBI Stock: Buy With A 33% Upside, Says Motilal Oswal

Broking firm Motilal Oswal has placed a buy call on India's largest lender, State Bank of India (SBI), with a 33% upside on the stock. Here are some of the reasons to buy the stock according to the broking firm.

SBI: Stock to gains 33% from current levels

The brokerage said that the bank reported a steady quarter, with an earnings beat of 12% on some of its own parameters. This was aided by controlled provisions despite a challenging environment. Core operating performance was in-line.

Current market price	Rs 445
Target	Rs 600

"Asset quality ratios deteriorated marginally on elevated slippage in Retail/SME. However, the management clarified that slippage worth Rs 48 billion has already been recovered/upgraded in July'21. Furthermore, the total restructured book remained in check, while SMA 1/2 (exposure of >Rs 50 million) was stable QoQ at Rs 113 billion (0.5% of loans)," the brokerage has said.

SBI: Controlled provisions led to better earnings

State Bank of India reported first quarter profits for FY22 of Rs 65 billion (55% YoY growth; 12% above estimate), aided by lower provisions (20% YoY decline) v/s Motilal Oswa's own estimates. Net Interest Income growth was weak at 3.7% YoY (4% miss), with domestic Net Interest Income up 4 basis points QoQ to 3.15%.

Motilal Oswal Financial estimates for State Bank of India (in billion)

	FY 2022	FY 2023
Net Interest Income	Rs 1,201.1	Rs 1,382.1
Net profit	Rs 320	Rs 412
EPS	Rs 35.9	Rs 46.2
Price to book value	1.4 times	1.2 times
OPM %	2.90%	3.00%

Why Motilal Oswal has a buy on the stock of SBI?

Asset quality ratios deteriorated marginally on elevated slippage in Retail/SME. According to Motilal Oswal, the management clarified that slippage worth Rs 48 billion has already been recovered/upgraded in July'21. Furthermore, the total restructured book remained in check, while SMA 1/2 (exposure of Rs 50 million) was stable QoQ at Rs 113 billion (0.5% of loans)

According to the brokerage, the bank is gaining momentum in earnings every quarter. "Thus, we estimate SBI to deliver FY22/FY23 Return on Equity of 13.1%/14.6%, even as we build in credit cost of 1.6%/1.3% for FY22E/FY23E. Maintain BUY, with revised price target of Rs 600," the brokerage has said.

Other brokerages too have a buy on the stock

Some other brokerages like Goldman Sachs, CLSA etc., too have maintained buy on the stock.

CLSA has maintained buy call after the bank reported a solid performance and continued to deliver on asset quality.

"The Net Interest Income was a miss driven by yield pressure & a lack of growth. PpoP/net profits estimates cut by 1-3% and expect the bank to deliver a 14% Return on Equity in FY22 & 15% from FY23," it said.

Disclaimer

The above stocks are based on the report of Motilal Oswal Institutional Research. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as the Nifty has now crossed an historic peak of 16,000 points. Please consult a professional advisor.