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Last Updated : Oct 18, 2019 03:11 PM IST | Source: Moneycontrol.com

Motilal Oswal expects this bank stock to return 32% despite uncertain macros

SBI's subsidiaries – SBI MF, SBI Life Insurance, SBI Cards and SBI Cap Securities -- have displayed robust performance in the last few years

 
 
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Shares of State Bank of India gained 1.7 percent after Motilal Oswal remains bullish on the stock, expecting a massive 32 percent return despite uncertain macros.

The stock has corrected 29 percent over the past three months, which provides favourable risk-reward, the brokerage said. It conservatively expects return on asset (RoA)/return on equity (RoE) to improve to 0.7 percent/12.7 percent by FY21, respectively, and maintained its buy rating as well as target price at Rs 350 per share.

It was quoting at Rs 268.55, up Rs 3.10, or 1.17 percent on the BSE at 1348 hours IST.

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The country's largest lender's earnings were suppressed for the past several years due to issues pertaining to asset quality, merger and an adverse rate environment.

"Even now, the macro environment remains challenging with high rating downgrades in the system, resulting in new names being added to the stressed pool. However, given SBI's size, we believe the new stress is manageable (around two percent of total loans)," Motilal Oswal said.

The brokerage feels SBI is well poised for an earnings recovery led by steady operating performance at the pre-provisioning operating profit (PPOP) level (14 percent CAGR over FY19-21), recoveries from large NCLT resolutions and normalisation in credit cost to 1.9 percent/1.3 percent over FY20/FY21, respectively, against an average of three percent over FY16-19.

SBI's subsidiaries – SBI MF, SBI Life Insurance, SBI Cards and SBI Cap Securities -- have displayed robust performance in the last few years.

SBI plans to monetise several of its subsidiaries, which would lead to further value unlocking for stakeholders, Motilal Oswal said, adding at the current market price, SBI's subsidiaries accounting for around 35 percent of its total valuation. "The bank is trading close to its lowest valuation (0.7 times FY21 estimated asset book value) -- at least for the past five years (including asset quality review period)," it added.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Oct 18, 2019 03:03 pm
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