SBI Stock: Emkay Places A Near 50% Upside Target

Following the results of State Bank of India (SBI), several brokerages have raised the upside target on the stock. Foreign and domestic brokerages like CLSA, Motilal Oswal see spectacular gains.

Now, Emkay Global Financial Services has set a solid price target of Rs 600 on the shares of State Bank of India against the current market price of Rs 411. This means the stock has the potential of nearly 50 per cent from current levels.

"We believe that SBI's consistent outperformance on asset-quality front and sharp improvement in Return on Equity trajectory toward 15% over FY23-24E, seen pre-AQR, call for a strong re-rating. Retain Buy/OW 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 Rs186 (Rs172 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," says the Emkay Global report.

Q4 was an extremely strong quarter, with 9% profit after tax beat at Rs 64.5 billion, better-than-expected asset-quality performance (gross non performing assets 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 25 basis points. Credit growth moderated to 5% yoy, dragged by corporate, and was a tad disappointing.

Retail credit growth remained healthy at 17% yoy, driven by mortgages/car/express credit (PL). Asset quality has also held up well given the higher share of salaried class (PSU employees). Most private banks have shown better corporate growth, and thus SBI too will not be far behind. This, coupled with healthy retail growth, should drive better growth/LDR, and in turn NIMs/RoA.

"State Bank of India is entering FY22 from a position of strength, with better asset-quality and provisions/capital buffers. The bank will be one of the biggest beneficiaries of lumpy corporate resolutions and setting-up of ARC. Thus, we raise FY22/23 earnings estimates by 12%/6% and introduce FY24E, factoring in better NIMs/LLP. We see RoA/RoE at 0.7-0.9%/13-15% over FY22-24E," Emkay Global has said.

The shares of State Bank of India were last seen trading at Rs 411 on the NSE.