SBI's net up; buy with a taget of Rs 2,700: ICICI Direct

Kajal Gandhi, ICICI Direct, says that net profitability of SBI, at Rs 3,400 crore, is on the expected lines, however slippages have been higher than estimate. She feels that the stock is likely to correct. Long-term investors can enter this stock with a target price of Rs 2,700.

Also read: SBI Q3 net up 4% to Rs 3,400 cr on lower interest income Below is the edited transcript of her interview to CNBC-TV18. Q: What is your view on State Bank of India's (SBI) numbers and what kind of a move do you expect the stock to see beyond what is seen right now?
A: People were expecting net profitability around the same number. However, slippages have been higher than estimate, so I think the stock can correct today. Overall, they have maintained the run rate. In last one year the stock has not moved too much. It is trading in the range of Rs 400-500. Long-term investors can enter this stock at this price.  Q: You are not shocked by the fall in the net interest income (NII) of about 2.5 percent?
A: This number is in line with our estimate. We estimated Rs 11,100 crore as NII but consensus is slightly over and above it. We were expecting some dip in net interest margin (NIM) to come. Q: Does it turn around now or will Q4 continue to see this pressure of lowering interest rats and lowering net interest margins (NIMs) and therefore the pressure on NII as well?
A: The full impact of whatever cuts that has taken place will take one more quarter to reflect. NII maybe under pressure in the coming quarter also. But overall since the bank is maintaining good profitability trend, profits may not be that low but non-performing assets (NPAs) may take toll if the slippages remain higher. Q: What is the trajectory that you are expecting in terms of gross NPAs, how many more quarters of above 5 percent gross NPAs could SBI see?
A: This year at least will end above 5 percent but going forward, we should see the reductions/upgradations to be stronger. So, incremental slippages should get offset. So the number may not rise substantially after this year-end or so. Q: Other brokerage house has an accumulate call on the stock with a target price of Rs 2,600. What is your call?  
A: We also have a target of Rs 2,700 on the stock. We also believe that these dips from a longer-term perspective are good entry points on the stock.