Moneycontrol
Feb 12, 2018 10:08 AM IST | Source: Moneycontrol.com

SBI falls 4% post Q3 loss; analysts stay positive on NPA recovery hope, expect stock to give up to 35% return

Analysts have maintained their positive stance on the stock on hopes of asset quality improvement in FY19, expects the stock to give up to 35 percent return in next 12-month.

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State Bank of India shares slipped as much as 3.8 percent in morning Monday after reporting net loss for the first time in almost 17 years. Analysts have maintained their positive stance on the stock on hopes of asset quality improvement in FY19, expects the stock to give up to 35 percent return in next 12-month.

The stock price was quoting at Rs 288.20, down Rs 8.20, or 2.77 percent on the BSE, at 09:30 hours IST.

India's largest lender has posted standalone net loss at Rs 2,416.4 crore in Q3 - the first quarterly loss in almost 17 years, hit by a sharp spike in provisions and weakened asset quality. The bank had reported a profit of Rs 1,820 crore in the corresponding quarter a year ago.

"Net loss was due to lower trading income due to hardening of bond yields, higher corporate slippages leading to higher loan loss provisions and significant investment depreciation hit," the bank said in its filing.

Net interest income grew by 5.17 percent to Rs 18,687.52 crore compared to last year, with muted loan growth of 2.52 percent at Rs 19.24 lakh crore YoY.

Net interest margin improved by 2 basis points to 2.45 percent for December quarter, but contracted by 26 bps year-on-year.

Asset quality worsened further on sequential basis. Gross non-performing assets were higher at 10.35 percent compared to 9.83 percent in previous quarter and net NPAs at 5.61 percent in December quarter were higher compared to 5.43 percent in September quarter.

In absolute terms, gross NPAs increased by 7 percent sequentially to Rs 1,99,141.34 crore and net NPAs rose by 4.6 percent to Rs 1,02,370.12 crore due to corporate books.

Provisions for bad loans for the quarter ended December 2017 stood at Rs 17,759.72 crore, which shot up 145 percent compared to year-ago and increased 6.2 percent over September quarter.

Fresh slippages at Rs 25,836 crore in Q3 (including corporate slippages of Rs 21,823 crore of which power sector exposure to Rs 14,422 crore) were sharply higher compared to Rs 9,026 crore in September quarter.

"Slippage ratio for 9-month period was lower from year ago level and we aim to contain fresh slippages within 2 percent in FY19," Rajnish Kumar, Chairman, SBI said while addressing press conference.

SBI said it expects major NPA resolutions through FY2019 and steel sector accounts comprising more than 50 percent of NCLT-I cases are receiving encouraging response.

Brokerage houses remained positive on the stock despite weak set of earnings, citing recovery in FY19.

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Brokerage - Motilal Oswal | Rating - Buy | Target - Rs 375

State Bank Of India reported a weak quarter with net slippages spiking up (adversely impacted by divergence). On the positive side, 89 percent of corporate slippages came from stressed assets, resulting in a decline in net stressed assets to 8.4 percent of total loans.

Core pre-provisoning operating profit held stable led by modest growth in core other income while NII growth stood flat on sequential basis. While the core portfolio performance remains healthy, cleanup of residual stressed assets will remain an overhang in near term.

It cut FY18/19/20 earnings estimates by 75/20/22 percent respectively and build in capital infusion announced by the government. It revised price target to Rs 375 and maintain Buy rating.

Brokerage - Kotak Securities | Rating - Buy | Target - Rs 400

Kotak Securities has maintained Buy rating on the stock with revised target price upward to Rs 400 from Rs 375 per share as the bank remained well placed to benefit from non-performing loans (NPL) resolution cycle.

Resolutions & stronger balance sheet will drive re-rating, it feels.

Growth, capital & profitability are key focus points hereon.

Brokerage - IIFL | Rating - Buy | Target - Rs 360

IIFL has upgraded the stock to Buy with 12-month target price at Rs 360 per share.

SBI is estimated to post a significant recovery in its return on equity over FY18-20 supported by acceleration in loan growth, recovery in net interest margins, derivation of cost productivity / efficiencies and a sharp decline in the credit cost.

Return on equity is expected to cross 10 percent in FY20 enabled by an improvement in return on assets to 0.8 percent. This will enhance bank's ability to raise capital from market at better valuation in the coming years.

The subsidiaries such as SBI MF, SBI Life, SBI Cards and SBI Caps are doing extremely well and their contribution to SBIs consolidated valuation is on the rise.

Brokerage - B&K | Rating - Buy | Target - Rs 400

While maintaining Buy rating on the stock with target price at Rs 400 per share, B&K said the NPA formation has largely peaked.

It expects return on assets / return on equity to improve from a low of 0.1/1 percent in FY18 to 0.7/11 percent in FY20.

Valuations are reasonable at 1.2x FY19/1X FY20 adjusted for subsidiaries/joint venture valuations.

Brokerage - IDFC Securities | Rating - Neutral | Target - Rs 310

IDFC Securities is the only brokerage house that has downgraded SBI to Neutral with a target price at Rs 310 per share, building in return on assets of 0.5 percent for FY19 & 0.8 percent for FY20.

Uncertainty on non-steel National Company Law Tribunal (NCLT) cases will weight negatively on the stock, it feels.
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