SBI shares zoom on 74% surge in Q2 net profit; analysts raise targets, estimates

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Investors lapped up shares of State Bank of India (SBI) on November 7 after the company reported a strong, all-around performance for the quarter ended September 2022, leading to earnings well above what analysts had estimated.

The state-owned lender said its net profit surged 74 percent from a year earlier on improved asset quality and healthy loan growth. Its net interest income rose 12.83 percent to Rs 35,183 crore for the reported quarter, keeping with the improving trend of the previous two quarters.

Credit growth during the quarter was remarkable, beating even some of the top private banks. The largest lender of the country said the loan growth of over 20 percent year-on-year lifted core interest income and also operating profit growth.

Analysts at HDFC Securities underlined that net interest margin (NIM) reflation was sharper than expected at 3.2 percent (a rise of 15 bps sequentially) and is expected to improve further in the near term, with full MCLR impact yet to play out.

The broker tweaked its FY23-24 estimates to factor in better NIMs and higher near-term loan growth. It retained the ‘buy’ tag with a target price of Rs 700, rating core bank at 1.3 times the September 24 adjusted book value.

On November 7, the stock traded up 4 percent to Rs 617.55.

Kajal Gandhi, an analyst at ICICIdirect, also set target price at Rs 700 for the counter, adding that SBI with its humongous size has reported consistently upbeat performance with this quarter seeing above par growth in earnings and return ratios.

“The stock, long due for re-rating, should see a strong positive reaction,” she said.

According to her, key triggers for future price performance is likely to be strong credit growth guidance of 14-16 percent, steady NIMs with adequate provision buffer, improving Return on Equity (RoE) trajectory and Continued traction in customer & business accretion via Yono. Any value unlocking in subsidiaries will further help the stock prices to appreciate.

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A reduction in the SBI’s bad loan pile as well as a sharper loan growth has improved asset quality ratios in a big way for the quarter. On a net basis, bad loans were 0.80 percent of the loan book compared with 1.52 percent a year ago. This meant that the bank’s loan loss provisioning requirements have come down.

Ajit Kumar Kabi of LKP Securities, said he expects SBI to post a RoA and RoE of 0.9 percent and 15 percent by FY24 led by healthy balance sheet growth along with higher provision coverage ratio and stable asset quality.

Several other public sector bank stocks, too, were in huge demand on November 7. The Nifty PSU Bank index was up 5.65 percent, thanks to a rally in all constituent stocks led by Bank of Baroda that jumped over 11 percent.

"The stellar Q2 numbers from the PSU banking majors SBI and BoB reinforce the ongoing bullish story in banking,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “Rising credit growth, improving asset quality and margins bode well for the banking sector and this has the potential to take the Bank Nifty and Nifty to new highs, driven by the bulls, who are in command now.”

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.