Global research firms have remained mixed on their views on the stocks. Among marquee PSU bank names such as PNB, Canara Bank they have expressed surprise on the worsening asset quality.
Public sector banks have had a tough FY18 March quarter with ballooning provisioning, and NPAs (non-performing assets) hitting their financial health.
NPA ratio has surged to 13.41 percent for the March quarter in the case of PSU banks, a significant increase from 11-12 percent range it saw during the first three quarters of FY18, CARE Ratings said in a report.
Overall, for the banking space, out of 26 lenders that have declared their earnings, NPAs have marched ahead to Rs 7.31 lakh crore. Compared to the same quarter of last year, they have risen by Rs 2.5 lakh crore. For PSU banks, the figure stands at Rs 6.16 lakh crore.
The latest bank to declare its results is State Bank of India (SBI), which reported a net loss of Rs 7,718 crore for the quarter under review.
As such, stocks have either not reacted or surprised the Street in some cases after their results were declared. For instance, SBI soared 6 percent after the numbers were declared.
“Looking at other banks’ results, analysts were expecting State Bank of India to post a huge loss as well, the expectations could have been around Rs 2,000-odd crore. While all PSU banks have been writing off (their books) aggressively, in SBI’s case, too, it was anticipated. With such results, the stock could have probably fallen, but has actually managed to be steady. So, the worst was probably being priced in by investors in case of this stock,” AK Prabhakar, Head of Research at IDBI Capital told Moneycontrol.
However, global research firms have remained mixed on their views on the stocks. Among marquee PSU bank names such as PNB, Canara Bank they have expressed surprise on the worsening asset quality. Here’s a look at what major global research firms have said about the stocks.
Brokerage: Credit Suisse | Rating: Underperform | Target: Slashed to Rs 322 from Rs 381
Credit Suisse maintains an underperform rating on SBI post Q4 results but slashed its target price to Rs 322 from Rs 381 earlier. The residual stress is contracting, but further capital infusion might be required, said the note.
Gross NPAs have peaked at 10.9 percent this quarter. The global investment bank cuts FY19 EPS by 3 percent and FY20 EPS by 20 percent on higher provisions.
Brokerage: Bank of America Merrill Lynch | Rating: Buy | Target: Rs 380
BofA-ML maintains a buy rating on SBI post Q4 results and recommends a target of Rs 380. It looks like recognition of NPAs is now behind us and the recovery and loan growth is likely to drive sharp rebound.
The March-quarter weakness was led by new NPL norms, as well as treasury losses. But, we need to understand that SBI is the key beneficiary of asset quality cycle, which is positive.
Brokerage: Jefferies | Rating: Buy | Target: Rs 355
Jefferies maintains a buy rating on SBI post Q4 results with a target of Rs 355. The Street may like that gross stress has likely peaked. The core profitability should see a cyclical improvement. The global investment bank expects RoE to reach 15-16 percent only by FY21E.
Brokerage: Citi | Rating: Buy | Target: Rs 325
Citigroup maintains a buy rating on SBI post Q4 results with a target price of Rs 325. Higher slippages lead to P&L loss, and it looks like most of the stress is now recognised as NPA. Credit costs are likely to moderate, and the growth should improve from current levels.
Brokerage: Credit Suisse | Rating: Downgrade to Neutral from Outperform | Target: Cut to Rs 88 from Rs 188
The global research firm believes that capital depletion will lead to loan book contraction. It reacted to the bank’s dismal March quarter results after it reported a weak quarter on all fronts, which saw asset quality worsening sharply as slippages soared.
Brokerage: Nomura | Rating: Downgrade to Reduce | Target: Cut to Rs 75 from Rs 115
Nomura had observed that the bank’s reported asset quality in Q4 was worse than expected. The asset quality was weak even beyond the hit from the Nirav Modi scam. It also observed that the capita need at low prices is a key negative catalyst.
Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 125
The global research firm said that Q4 saw a big loss of $2 billion, driven by high slippages. It also said that core PPoP miss was driven by lower margin, weak fee and higher costs.
Brokerage: CLSA | Rating: Retain Sell | Target: Cut to Rs 230 from Rs 280
CLSA observed that stressed loans drove NPLs for the bank, while slippages rose due to downgrade of non-NPL stressed loans. Upfront provisioning for NCLT & MTM losses on g-secs is conservative, it said. Going forward, it expects profitability levels to normalize from FY20.
Brokerage: CLSA | Rating: Buy | Target: Rs 125
The global research firm said that slippages for the bank rose, led by stressed pool. Further, the bank will need capital support and is built in the forecasts, it observed. The brokerage house cut earnings estimates to factor weaker topline and higher provisioning.
Brokerage: Nomura | Rating: Buy | Target: Cut to Rs 105 from RS 165
Nomura said that valuation of the stock was cheap, but near term catalysts were limited. It observed that asset quality surprised negatively.
Brokerage: Deutsche Bank | Rating: Hold | Target: Cut to Rs 95 from Rs 105
Deutsche Bank observed that asset quality was going from bad to worse. Slippages rose across segments, overall stress book at 17.5%, the brokerage house said in a report. Going forward, it said that recovery will be lengthy owing to weak operating profile.
Brokerage: Credit Suisse | Rating: Neutral | Target: Cut to Rs 97Credit Suisse said that all losses have wiped out capital infusion. Overall, gross loan growth remained weak. Gross slippages spiked to Rs 10,000 crore in Q4 and it has cut EPS by 20-40 percent. It is building in higher credit cost and weaker growth.