India's largest lender, State Bank of India, will see strong acceleration in earnings momentum in the quarters ahead, analysts said after its July-September quarter performance.
Strong credit growth, better than expected net interest margins, lower slippages and credit costs aided the second quarter performance.
Credit growth acceleration was led by strong traction in the retail and corporate loan book. The bank clocked higher-than-industry credit growth at 20% year-on-year.
Brokerages are factoring-in better growth, margins and lower provisions. However this will be partly offset by higher staff cost due to ad hoc provisions towards wage revision.
Also, analysts expect a strong return on assets of approximately 1% on the back of healthy growth and reduction in non-performing assets. Only 9% of the restructured book is in the special mention account category, alluding to limited stress.
SBI Q2FY23 Earnings Key Highlights:
SBI posts highest ever quarterly profit of Rs 13,265 crore.
The bank's net interest income saw an increase of 13% from a year ago to Rs 35,183 crore.
Highest NIM and RoA in many years.
The lender's domestic NIMs improved 32 basis points sequentially to 3.55%, which is the highest since December 2015.
Credit cost improved by 15 bps from last year to a historical low of 0.28%.
Asset quality improved sharply, where net NPAs dropped to 0.8% from 1% in June.
The bank's pre-provision operating profit came in at Rs 21,220 crore compared to Rs 18,079 crore in the year-ago period.
The bank's RoA stood at 1.04% for the September quarter, up by 38 bps year-on-year.
SBI's provision coverage ratio, without advance under collection accounts, as stood at 77.93%, while PCR with AUCA is at 91.54%.
Shares of the state-run lender jumped as much as 4.8% to Rs 622.7, an all-time high, while the benchmark Nifty 50 gained 0.2% on the NSE. Of the 51 analysts tracking the company, 50 maintain a 'buy', one suggests a 'hold'. The 12-month consensus price target implies an upside of 16.1%.
Here's what analysts expect from SBI going forward:
Credit Suisse
Corporate growth was led by pick up in working capital utilizations. Overseas book expanded 18% on US dollar basis and the rest was contributed by currency depreciation.
Going forward, management expects rising interest rates and hedging costs will push corporates towards local rupee borrowing.
Residual impact of repricing on part of the marginal cost-based lending rate and treasury bill linked book (at 52% of total loans) can improve yields further.
The bank holds a large liquidity buffer of Rs 3.5 lakh crore in treasury instruments, which it will use to support growth in addition to term deposit repricing. Hence, deposit rate hikes may be gradual and NIM outlook remains healthy for the rest of the year.
Adjust for the lower credit costs and raise earnings per share estimates for FY23 by 6%, F24 by 1% and FY25 by 1%.
Maintain outperform and raise target price to Rs 680 per share from Rs 660 before.
JP Morgan
With RoAs past the 1% mark, RoE at 18% levels and a benign credit cost environment, SBI may not push NIMs upward much and choose to pass some of the gains in the market.
Outlook for corporate growth appears strong with the bank highlighting term loan pipeline of Rs 3.7 lakh crore and likely gains from disintermediation of bond market.
An environment of higher loan growth could see the bank either raise capital or sell down subs to fund growth. Common equity Tier-1 ratio at 9.5% is lower than other public sector banks.
Raise FY23 and FY24 EPS estimates by 11% and 5% respectively.
Remain overweight on the stock, with target price raised to Rs 720 per share, from Rs 650 before.
ICICI Securities
Expect NIM trajectory to sustain with repricing of lending book offsetting any deposit cost rise.
Credit growth of 18% / 16%, stable NIMs, operating profit growth and lower credit cost of will drive RoE.
Looking at a slippage run-rate of 1.2%/ 1.3%, and gross NPA settling at 3.2% in FY24 and 2.9% in FY24.
Early FY24 may witness a large part of retail and small and medium entperises restructured pool moving out of the moratorium.
Internal accruals can support growth in the interim and therefore, it will look to raise capital at an appropriate time.
Maintain 'buy' rating, increase target price to Rs 805 from Rs 673.
Nuvama
Expect stock to re-rate driven by margin expansion, strong loan growth and low credit cost sustaining over the next few quarters.
Expect an RoA of 0.9% and an RoE of 15% in FY24E even after factoring in the new wage bill.
Expect SBI to raise fresh equity in next 12 months.
Upgrade to ‘buy' from ‘hold', for target price of Rs 715 per share.
Motilal Oswal
SBI remains one of the preferred picks in the sector.
High mix of floating loans will benefit from loan re-pricing.
High mix of floating loans to continue to support the NII and overall earnings.
Deposit cost could see some increase.
Estimate earnings to post 32% compounded annual growth rate over FY22-24.
Maintain 'buy' rating, increases target price to Rs 700 a piece.
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