SBI Q1 Results Review: NIM A Drag, But Asset Quality, Loan Growth Hold Up

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%.