Brokerages cheer SBI's all-round Q4 show amid lower staff costs, but rich valuations to restrict re-rating

Lower staff costs helps SBI's Q4 profit beat estimates

Nomura also maintained a 'buy' call on SBI and hiked target price to Rs 1,000 per share from Rs 825. The brokerage firm believes that lower operating expenditure than estimated was aided by lower wage revision provisions on reassessment.

SBI's Q4 wage revision stood at Rs 670 crore, significantly lower than the management's guidance of Rs 5,400 crore.

Meanwhile, the public sector lender's net proft jumped by 24 percent year-on-year (YoY) at Rs 20,698 crore in Q4FY24, beating analysts' estimates by a wide margin, who estimated profit to be in the range of Rs 10,432-14,743 crore.

On the other hand, its net interest income (NII) rose 3 percent YoY to Rs 41,656 crore in Q4FY24.

ALSO READ: SBI Q4 net profit rises 24% to Rs 20,698 cr, GNPA lowest in 10 years

SBI's margins to improve gradually as cost of funds stabilise

However, the bank's net interest margin (NIM) contracted by 37 basis points (bps) YoY to 3.47 percent in Q4FY24 from 3.84 percent a year back amid rising cost of funds. But it expanded by 8 bps on a sequential basis.

Going ahead, Emkay Global analysts expect margins to stabilise, aided by healthy LDR, better portfolio mix, and contained cost of funds. The brokerage firm retained a 'buy' call and raised target price to Rs 950 per share from Rs 750 on SBI.

The management also said that most of the deposit repricing plateaued in October and December and now margins would grow at a stable pace.
"The bank's efforts will be towards maintaining margins in the same range as reported in the March-ended quarter," said SBI Chairman Dinesh Khara in a post-result analyst conference call.

Street cheers SBI's rosy asset-quality picture

Besides that, the bank's asset-quality picture remains rosy in the March-ended quarter. The gross non-performing asset (GNPA) of SBI came in at 2.24 percent as against 2.78 percent last year, while net NPA came in at 0.57 percent compared to 0.67 percent last year.

Given a low LDR and stable asset quality, analysts at Nuvama expect SBI to outperform going ahead. "With big comfort on LDR, strong asset quality
and potential upside to CET-1 from new investment norms and strategic
divestments, we reiterate a 'buy' rating on SBI and raise target price to Rs 950 from Rs 745 earlier," the brokerage said.

So far this year, shares of SBI have surged over 27 percent, outperforming a paltry 1 percent rise in the benchmark Nifty 50 index during the same period.

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