Analysts go gung ho on SBI stock, see more legs to rally

Analysts go gung ho on SBI stock, see more legs to rally

NEW DELHI: Bullish bets on the SBI stock have kept on rising, even after the stock rebounded 87 per cent from its 52-week lows of Rs 149 hit in May, 2020.

The stock on Wednesday closed at Rs 284, up 1.12 per cent in an otherwise depressed market, and now commands a market value of over Rs 2.52 lakh crore.

Data compiled from the publicly available Reuters Eikon database showed the state-run lender had 25 ‘buy’ recommendations as of Monday compared with 23 three months ago. The stock also had 15 ‘outperform’, 2 ‘hold’ and just one ‘underperform’ ratings.

In comparison, private lender HDFC Bank had 21 ‘buy’ calls, Axis Bank had 19 while Kotak Mahindra Bank had eight bullish recommendations. Only ICICI Bank had more ‘buy’ ratings than SBI at 26.

Analysts said SBI’s performance in terms of collections and outlook on restructured loans has been similar to that of its private peers. They believe the legacy book has been adequately addressed and the bank does not expect any further surprises. They find the stock valuations inexpensive.

JM Financial finds SBI attractive due to ‘lower-than-previously-feared stress levels’. It said the macroeconomic environment continues to be larger-than-warranted and that is having a bearing on the SBI stock price.

“Given the improving economic environment, we expect SBI to deliver strong gains even from the current market price. SBI’s liability franchise remains unparalleled (Casa ratio at 45.4 per cent) and the recent deposit rate cuts have cushioned the NIMs (net interest margins) against downward pressures due to excess liquidity. Core bank valuations at 0.6 times FY22 book value are still undemanding and provide an attractive entry point for long-term investors,” the brokerage said.

Kotak Securities pegged the stock value at Rs 340.

The brokerage said the bank’s retail book should hold up better in this cycle compared with the corporate book. It noted that 50 per cent of the bank’s earnings growth in the September quarter was on account of a 25 per cent YoY decline in provisions. Net interest income (NII) for the lender rose 15 per cent YoY; NIM improved 0.05 per cent to 3.1 per cent and gross non-performing loans (NPL) hit a five-year low at 5.3 per cent.

Emkay Global said SBI’s gross NPAs are the lowest among the PSU lenders and better than that of ICICI Bank. It sees the stock value at Rs 340.

“The bank expects limited stress after Covid-19, given its relatively resilient retail book that includes secured mortgages and unsecured PL built largely around salaried government employees. ECLGS/restructuring should limit the stress in the otherwise risky SME portfolio. Improving prospects of resolutions in some large corporates should further reduce corporate NPAs,” Emkay said.

Elara Capital echoed the view. It said SBI is likely to see lower incremental stress because the proportion of corporate loans is low and a higher proportion of retail loans is to salaried government employees. This brokerage projects SBI’s return on assets to improve to 0.6 per cent in FY22 from 0.4 per cent in FY20 and suggests a target of Rs 335 for the stock.

JM Financial said the bank now carries a strong provision coverage ratio (PCR) at 71 per cent, driven by strong PPoP (pre-provisioning operation profit) on healthy margins and value unlocking in subsidiaries and investments.

“The Covid-19 provisioning buffer stands at Rs 7,100 crore, or 0.31 per cent of loans. Based on the PSB standards, this looks reasonable and should help limit incremental credit cost,” it said, and suggested a price target of Rs 300 for the stock.

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