Analysts Cut SBI’s Earnings Estimates For 2019-20 After Q1 Results
Most analysts cut their earnings estimates for State Bank of India after the state-run lender reported higher gross slippages in the quarter ended June.
The bank's gross slippages stood at Rs 16,212 crore in the April-June period compared with Rs 7,505 crore in the three months ended March 31, according to SBI's exchange filing.
Higher gross slippages came as one regular account of a Maharatna company slipped into NPA books of another bank, SBI Chairman Rajnish Kumar had said in a media statement. “One bank did not successfully implement the resolution plan fully on time. This account added about Rs 2,000 crore to the slippages.”
SBI also lowered its return on assets guidance for 2019-20 to 0.60 percent from 1 percent earlier on delayed resolution of bad loans and higher asset quality risks.
Still, the brokerages maintained their bullish rating on the stock as it trades at cheaper valuations.
Here's what they have to say on SBI Q1 Results 2019-20:
UBS
- Cuts earnings estimates by 17 percent for FY20.
- Maintains ‘Buy' rating with a target of Rs 375 a share.
- Weak asset quality led to earnings miss.
- Profit after tax missed estimates on lower-than-expected non-interest income.
- The bank has a strong retail liability franchise and a decline in cost-to-income ratio would drive return on assets.
- Risks to estimates are rising due to deterioration in the economy.
- The stock, at 1.0 times its price-to-book value, trades near its five-year average multiple.
Kotak Institutional Equities
- Maintains 'Buy' but cuts target price to Rs 390 from Rs 410 earlier.
- Weak start to FY20 earnings with 3 percent slippages.
- Balance sheet recovery still well underway.
- Expects volatile earnings in medium term.
- Expects FY20 will be better than FY19.
Motilal Oswal
- Cuts FY20/21 earnings estimates by 14/11 percent to factor in higher credit cost/slippages.
- Maintains ‘buy' with a target price of Rs 380 apiece.
- Asset quality challenges still not fully over.
- Higher provisions drive earnings cut.
- After benign slippage rate in last few quarters, SBI has again reported an increase in slippage trajectory, reflecting deterioration in the underlying lending environment.
- Improvement in margins, cost control to help mitigate credit cost pressure.
Ambit Capital
- Cuts FY20 EPS estimate by 30 percent but marginally upgrades FY21 EPS estimate by 7 percent.
- Maintains ‘Buy' but lowers target price to Rs 361 from Rs 390 a share.
- Weak recoveries in corporate NPAs and higher-than-expected slippages in agricultural and SME accounts.
- Expects credit cost moderation to be slow and gradual versus earlier expectation of a swift recovery.
Edelweiss
- Maintains ‘Buy' with a target price of Rs 377 a share.
- Q1 characterised by elevated slippages even as core operating metrics were broadly steady.
- General activity slowdown could adversely impact performance as SBI is a proxy to the economy.
- Still, SBI is better positioned among peers.
- Stock is trading at an inexpensive 0.8 times FY21 estimated price-to-book value for return on equity potential of about 14 percent by FY21.
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