Moneycontrol
Nov 13, 2017 12:07 PM IST | Source: Moneycontrol.com

SBI Q2 fall on higher provisions but brokerages maintain buy; see up to 20% upside in 1 year

Country's largest lender State Bank of India has reported a sharp de-growth of 38 percent year-on-year in standalone profit for July-September quarter, dented by higher provisions for bad loan accounts referred for insolvency proceedings at the National Company Law Tribunal (NCLT).

 
 
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State Bank of India (SBI) which reported its results for the quarter ended September last week rose by about 3 percent in trade on Monday after global brokerages maintain a buy to outperform rating on India’s largest public sector bank.

Country's largest lender State Bank of India has reported a sharp de-growth of 38 percent year-on-year in standalone profit for July-September quarter, dented by higher provisions for bad loan accounts referred for insolvency proceedings at the National Company Law Tribunal (NCLT).

Profit for the quarter, which also missed analyst estimates, declined to Rs 1,581.55 crore, from Rs 2,538.32 crore in year-ago. Sequential fall in profit was 21 percent, the bank said.

Net interest income, or the difference between interest earned and interest expended, grew by 27.3 percent year-on-year to Rs 18,585.9 crore in Q2, which was above estimates.

Most brokerage firms maintained their buy or outperform rating on State Bank of India post Q2 results while some of them have hiked their target price.

The most aggressive target price was put out by CLSA and hikes its 12-month target price to Rs400 from Rs350 earlier which translates into an upside of nearly 20 percent from current levels.

Here’s what brokerage firms reacted to SBI Q2 results:

CLSA: BUY| Raised target price to Rs400 from Rs350 earlier

CLSA maintains a buy rating on SBI post Q2 results but raised its 12-month target price to Rs400 from Rs350 earlier. Lower slippages and higher provisions are a key positive for the national lender.

However, weak topline is still a concern but merger synergies are playing out, said the note. The global investment bank slashed earnings estimates by 6-13% to build higher credit costs and weaker topline.

It maintains a buy rating on the stock given stronger deposit franchise and better asset quality across PSUs.

Deutsche Bank: BUY| Raised target price to Rs380 from Rs345 earlier

Deutsche Bank maintains a buy rating on SBI post Q2 results but raised its 12-month target price to Rs380 from Rs345 earlier.

The September quarter saw better asset quality for the public sector lender, slippages declined and coverage increased which are a key positive for the stock.

However, growth continues to remain weak. While there are no further significant improvement in NIMs, the global investment bank expect FY18 net interest margins to marginally decline led by lower yields and asset re-pricing. Deutsche Bank expects slippage trends to moderate in H2.

Kotak Securities: BUY| Raised target price to Rs375 from Rs350 earlier

Kotak Securities maintains a buy rating on Kotak Securities on SBI post Q2 results and hiked its 12-month target price to Rs 375 from Rs350 earlier.

Gains on stake sale were utilised to improve provision coverage by 470 bps. However, there is still some pressure on revenue growth and path to profitability.

The bank still has some scope for improvement largely driven by resolutions and lower slippages. Going forward, slippages might still be volatile but likely to show lower negative surprises, said the note.
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