State Bank of India (SBI) Q3 results were marred by a significant one-off pension provision even as the extent of the miss was being offset somewhat by the lower opex and lower credit cost. Despite the profit miss, analysts largely maintained positive view on the state-run bank, with a few target prices suggesting up to 23 per cent upside potential on the counter.
Motilal Oswal said SBI's profit was 17 per cent below its estimate of Rs 11,000 crore, affected by higher wage provisions and an exceptional item of Rs 7,100 crore. Adjusting for the exceptional item, net profit would have been Rs 14,400 crore, it noted.
The domestic brokeraqe said slippages for the quarter rose marginally, while healthy recoveries and write-offs led to a 13 basis points decline in the gross NPA ratio. It raised its FY25 EPS estimates by 4.6 per cent as the wage/pension provisioning gets completely done within FY24 and expects the overall credit cost to remain under control. It suggested a target of Rs 800 for the stock.
"SBI was able to still report a 1 per cent RoA (excluding the exceptional item), even in Q3, which we find commendable. NIMs declined 7 bps QoQ to 3.2 per cent, despite a sharp improvement in loan-to-deposit ratio (from 71 per cent to 74 per cent), which was a tad disappointing. As a result, NII was 2 per cent below our estimate and so were core fees, resulting in a soft topline performance in 3Q. Positively, loan growth delivery was strong at 15 per cent YoY, and SBI has the lowest loan-to-deposit ratio among frontline banks," Nomura India said.
This brokerage has upped its target on the stock to Rs 755 from 665 earlier.
InCred Equities said the standalone SBI with 1 per cent RoA, growth diversity and improving asset quality may keep commanding a valuation premium. It retained the stock in its high-conviction 'ADD' rating on it, with a higher target price of Rs 800 from Rs 750 earlier.
"We have valued SBI on a sum-of-the parts (SOTP) basis, with the standalone bank valued at 1.4x FY25F ABV and the subsidiaries contributing Rs200/share. Downside risks: Weaker growth and surge in non-performing assets or NPAs," it said.
Antique Stock Broking said the overall performance was healthy and the bank continues to gain from the low credit cost cycle, which can continue for some time; and is difficult to precisely time the normalisation. It has largely maintained its earnings forecasts for FY25 and FY26 and expects SBI to report a RoA of 0.9 per cent and RoE of 17 per cent. This brokerage suggested a target of Rs 750 on SBI.
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