State Bank of India's first-quarter profit beat analysts' expectations, but analysts are concerned by the operationally weak numbers of the country's largest lender.
India's largest lender's net profit surged 178.25% year-on-year to Rs 16,884.3 crore in the quarter ended June, according to an exchange filing. Net interest income, or core income, rose 24.71% to Rs 38,904.9 crore.
The bank's asset quality improved, with the gross non-performing asset ratio improving to 2.76% quarter-on-quarter and the net NPA ratio declining to 0.71% sequentially, compared with 2.78% as of March 31. Provisions for the quarter fell 43.05% year-on-year to Rs 2,501.3 crore.
However, lower NIMs and higher opex dragged core operating profit lower, according to Jefferies. The repricing of MCLR-linked loans failed to offset the pressure from increased funding costs as NIMs narrowed by 27 basis points quarter-on-quarter, the brokerage said.
The lender's fresh slippages more than doubled to Rs 7,659 crore quarter-on-quarter, compared to Rs 3,185 crore in the previous quarter.
Shares of the company was 3.70% up at Rs 577 apiece during pre-market trade on Monday.
Of the 50 analysts tracking the company, 47 maintain a 'buy', two suggest a 'hold' and one recommends a 'sell', according to Bloomberg. The average of 12-month price target given by analysts implies an upside of 25.5%.
Here is what analysts said about SBI's Q1FY24 results:
Jefferies:
Lower NIMs and higher opex dragged core operating profit to 11% growth year-on-year.
The compression of NIMs by 27 basis points quarter-on-quarter was unexpected, as repricing of MCLR-linked loans was expected to offset the pressure from increased funding costs.
SBI's CASA growth may have been boosted partly by the deposit of Rs 2,000 notes.
Clarity on the extension or change of chairman will be a key monitorable for SBI.
Maintain 'buy' with a target price of Rs 760, suggesting an upside of 29%.
Macquarie:
The lender's loan growth of 14% year-on-year was driven by retail and SME segments, whereas the corporate book was flat quarter-on-quarter.
Of the PL book, 94% is for salaried customers employed in the government sector or government companies.
Lower-than-expected loan growth and deterioration in asset quality are the key risks.
Maintain 'outperform' with a target price of Rs 720, suggesting an upside of 23.9%.
Ambit Capital:
Expect the bank to deliver a 15% loan CAGR while maintaining a steady NIM over FY23–25 owing to a high share of MCLR loans, a low credit-deposit ratio, and a changing loan mix.
Fee income was adversely impacted due to muted forex income, but non-core income was strong due to strong recoveries and investment gains.
Other opex grew 4% year-on-year due to a decline in business acquisitions and development expenses and insurance costs.
Expect asset quality trends in FY24–25 to be better than private banks due to a better-quality retail loan book. With this, the credit cost is expected to be contained at 65 bps over FY23–25E.
Maintain 'buy' with a target price of Rs 750, suggesting a potential upside of 30.8%.
Systematix Institutional Equities:
Current accounts declined 8% quarter-on-quarter due to seasonal weakness.
Return ratios in Q1 FY24 were strong, with RoA at 1.2% and RoE at 20.1%.
Xpress credit, which is mainly unsecured personal loans to salaried PSU employees, slowed below the trend growth of 6% quarter-on-quarter to 2% quarter-on-quarter and 20% year-on-year.
Estimate deposit repricing to continue along with modest asset repricing, resulting in FY24E NIMs at 12 bps below the Q1FY24 levels.
Maintain 'buy' with a target price of Rs 670, implying an upside of 16.9%.
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