Shares of State Bank of India (SBI) fell 3% to Rs 514 on BSE in Monday’s intraday trading on earnings booking after the public sector bank reported a 6.7% drop year-on-year (YoY) net profit to Rs 6,068 crore for the quarter ended June 2022 (Q1FY23) due to a sharp drop in non-interest income, as market impairment losses increased . The lender had reported a net profit of Rs 6,504 crore in the corresponding period last year (Q1FY22).
The lender’s net interest income increased 13% year-on-year to Rs 31,196 crore in the first quarter of FY23, driven by improved credit drawdown across all segments and improved asset quality, but non-interest income fell by 80% over the same period to Rs 2,312 crore while investment loss stood at Rs 6,549 crore.
Asset quality improved with the lender’s gross non-performing assets (NPA) standing at 3.91% at the end of the June quarter, down 141 basis points year-on-year and 6 basis points lower. sequential basis. Similarly, net NPAs declined 77 basis points year-over-year and 2 basis points sequentially to 1% over the same period. READ MORE
Over the past three months, the SBI has outperformed the market by gaining 7%, against a 4.7% rise in the S&P BSE Sensex. Over a one-year period, the stock rose 17% against a 7% gain in the benchmark index.
The brokerages maintain the “Buy” rating on SBI with a target price between Rs 615 and Rs 660.
“We believe the overall lending franchise strength, provision buffers and healthy guidance are positive. Improving yield ratios with RoE at ~12% and RoA at ~0.7-0.8% provide long-term comfort on the stock,” ICICI Securities analysts said.
Credit growth forecast of around 14-15% based on a healthy demand pipeline to support business growth and overall performance. Gradual improvement in the margin, stable operating efficiency combined with an adequate reserve buffer to support the profitability dynamic. Improve the trajectory of RoE to help improve valuations. The continued traction of growing customers and businesses through “Yono” and the unlocking of affiliate value to act as a positive surprise are key drivers for future price performance, the brokerage said.
A higher than expected cash loss resulted in a marginal reduction in our earnings estimate for FY23. However, we expect SBI to experience strong earnings growth as early as Q2FY23, resulting in an earnings CAGR of 29 % on FY22-24. We estimate a FY24 RoA/RoE of 0.9%/17%. SBI remains one of our Buy convictions in the sector, analysts at Motilal Oswal Financial Services said.
With accelerated rate hikes and an ample cash cushion, brokerage firm CLSA still expects its margin to improve in FY23CL. Bond losses were higher than expected and are driving some of our earnings swings (reduction of around 4% for FY23CL), but credit costs continue to exceed our expectations, the brokerage said.
“We expect an ROE of around 15.5% to 16% in FY23-25, and with a favorable credit cycle, we see low risk for an ROE of +15%. We are therefore increasing our target price by Rs615 to Rs660, mainly due to subsidiary price targets SBI has outperformed its peers by more than 30 ppts over the past 18 months and its current forecast book valuation of 1.1x YTD is now approaching fair levels” , CLSA said.