SBI Q3 results miss estimates on one-time loss. But there is a twist in the tale

SBI reported a 35.5 percent on-year decline in standalone net profit at Rs 9,163 crore for the quarter ended December 2023

State Bank of India (SBI) has failed to live up to the projections made by the Street with its Q3 net profit being battered down by a hefty wage and pension bill. The state-run lender's overall earnings, however, remained healthy, driven by lower credit costs, despite weak core operating performance, which attracted bullish calls from brokerages. Analysts believe that SBI is well-placed amid tight liquidity.

For the quarter ended December 2023, the bank's net profit fell 35 percent on-year to Rs 9,163 crore under Rs 7,100-crore pension liabilities. The net interest income (NII) of the country's largest bank came in at Rs 39,815 crore, missing estimates of Rs 40,304 crore.

According to analysts at Noumra, despite soft NIM and significant one-off expenses in Q3FY24, SBI demonstrated robust loan growth, although NIM fell short of expectations.

"The bank is positioned well within the current tight liquidity environment," it said, adding that SBI's operational expenses were managed effectively, excluding the impact of elevated provisions for wage revisions.

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While the brokerage has put a 'buy' call on the stock with a target price of Rs 755 per share, it has adjusted its FY24 EPS estimate downward by 13 percent.

SBI's asset quality remained robust in the quarter under review, with net slippage at just 0.4 percent.

JP Morgan noted that despite a 12-bps sequential decrease in core NIMs due to deposit repricing, SBI's credit costs were lower, with core loan losses offset against account level upgrades.

Looking ahead, the brokerage believes that Q4 is expected to see another wage revision hike, while FY25 stands to benefit from a moderation in wage costs, driving up the operating leverage. It has an 'overweight' call on the stock with a target price of Rs 725 per share.

Jefferies also has a 'buy' rating on SBI with a target price of Rs 810 per share. The public sector lender's NIMs were effectively managed, contributing to NII growth, while loan growth improved to 14 percent, primarily driven by corporate loans, the brokerage noted. The unsecured retail segment shows signs of normalisation downward, it said.

"Despite concerns, asset quality is performing better than estimated. With a CET-1 ratio of 10.4 percent, there's a limited buffer, but high return on equity (RoE) and marked-to-margin (MTM) gains may provide support. However, the potential for a near-term capital raise remains an overhang," Jefferies said in a report.

Note that the CET-1 ratio compares a bank's capital against its risk-weighted assets to determine its ability to withstand financial distress. International firm Bernstein also has an 'Outperform' rating on SBI with a target price of Rs 710 per share.

Also Read | SBI Q3 results: Net profit plummets 35% to Rs 9,163 crore, asset quality healthy

According to Motilal Oswal, SBI has various levers such as cash deposit (CD) ratio and marginal cost of the fund-based lending rate (MCLR) repricing to keep margins stable.

SBI's business growth remains robust, with signs of a recovery in the corporate segment, the brokerage said as it maintained a 'buy' rating on the stock with an unchanged target price of Rs 800.

Analysts at JM Financial Services believe delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters aiding controlled credit costs should lead to strong profitability going ahead.

"We value the core banking business at 1.2x FY26 P/BV and arrive at our SoTP-based target price of Rs 800 per share," the brokerage said as it maintained a 'buy' rating on the stock.

At 9:43am, the SBI shares traded flat at Rs 651.70 a piece on the NSE. The stock has risen around 18 percent in the last one year, underperforming benchmark Nifty 50 which has risen 23 percent during this period.

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