State Bank of India is well-placed to benefit from a pickup in bank credit growth across the corporate segment, according to Jefferies.
India's largest lender has seen a "strong pick-up" in corporate credit growth, improving to 15% in Q1 FY23 against 11% in the March quarter last year, the research house said in a note dated Sept. 20.
"Its overseas credit growth also picked up to 22% in Q1 FY23 and can improve further with increased activity in syndication (overseas clients), the rollout of factoring business, and higher trade credit; rupee depreciation is boosting growth by 6-8%."
Jefferies maintained its 'buy' call on SBI and raised its target price from Rs 630 to Rs 700. It also raised credit growth and topline growth estimates for FY23-24. "We raise earnings estimates by 3-5% to factor in higher credit growth and see healthy growth in profits and ROA expanding towards 1% and ROE to 15% in FY24."
It also said SBI will need to boost core capital levels to keep buffers over norms. For that, it may look to monetise part of stakes in listed subsidiaries like SBI Life Insurance (bank owns 56%) and SBI Cards (bank owns 69%).
"If SBI brings down the stake to 52%, then the value of stake sale can lift the capital adequacy ratio by 70-80 bps. The bank may also look to list some unlisted franchises like SBI General and SBI AMC, so we see lower chances of that happening in the immediate term."
Shares of SBI gained as much as 0.5% in early trade, before paring all gains to end 0.7% lower on Wednesday. Of the 50 analysts, 48 maintain a ‘buy’ and two suggest a ‘hold’, according to Bloomberg data.
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