SBI stock down 17% from record high: Buy, sell or hold?

Shares of the country's largest lender State Bank of India (SBI) are in focus as brokerages have turned bullish with the stock down over 17 per cent from record high. The SBI stock hit an all-time high of Rs 549.05 on February 7, 2022.  The large cap stock was trading at Rs 455 level today. The stock trades higher than 5-day moving averages but lower than 20-day, 50-day, 100-day and 200-day moving averages.

SBI stock rose 1.90 per cent intraday to Rs 460.10 against the previous close of Rs 451.35 on BSE. The stock has lost 1.37 per cent since the beginning of this year and risen 8.88 per cent in one year. Market cap of the bank stood at Rs 4.05 lakh crore on BSE. Total 0.82 lakh shares changed hands amounting to a turnover of Rs 3.74 crore on BSE.

The lender reported a 41 per cent rise in Q4 net profit.  However, the earnings missed street estimates, which expected the bank to report over 60 per cent rise in Q4 profit at 10,493 crore. SBI stock fell 4.42 per cent to Rs 442 against the previous close in that session.

The bank reported a 41.2 per cent jump in its standalone net profit at Rs 9,113.53 crore for the fourth quarter ended 31 March, 2022 against a net profit of Rs 6,450.75 crore in the year-ago period. The bank clocked its highest quarterly net profit in Q4FY22. Net profit for FY22 rose 55.19 per cent YoY to Rs 31,676 crore.  

Income from interest on loans rose 8.6 per cent, while provisions for bad loans fell by two-thirds to Rs 3,262 crore, the bank said. The board of the lender cleared Rs 7.10 per share dividend.

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CLSA is bullish on the SBI stock with a target price of Rs 615, 36.35 per cent higher to the previous close of Rs 451.35 .

"Growth, margins and asset quality of the lender are heading in the right direction," CLSA said. Credit growth is holding up better and there is high certainty of improving margins, it said. The brokerage sees no worries over asset quality, lower credit costs to more than offset mark to market loss.

HDFC Securities has maintained a target of Rs 600 against the market price of Rs 444.8 in mid-June.

The brokerage said, "Despite healthy loan growth (11 per cent year-on-year) and stable NIMs (3.1 per cent), State Bank of India's (SBI) earnings missed estimates, with profit after tax at Rs 91 crore, impacted by higher credit costs at 1.1 per cent (annualised). Slippages were marginally elevated (0.6 per cent), driven by agri slippages and recognition of a large corporate account (Rs 12 crore) while the restructured book improved to 1.1 per cent (Q3FY22: 1.5 per cent). "

"Revival in economic activity and improving utilisation of corporate credit limits are likely to augment loan growth further although SBI may also need to build its equity buffers. However, the road to 1 percent RoA remains contingent on whether SBI is able to calibrate its yields in a rising interest rate scenario. The brokerage has cut FY23/FY24 earnings estimates by 7 per cent each, respectively to factor in repricing on both sides of the balance sheet and a higher opex. The brokerage maintains BUY with a revised SOTP-based target price of Rs 600 (core bank at 1.2x Mar-24 ABVPS)," it added.

ICICI Securities has maintained a buy call for the stock in a report dated June 11, 2022.  It assigned a target price of Rs 673.

"SBI exited FY22 with 13.9 per cent return on equity (RoE) and 0.67 per cent returns on assets (RoA) aided by growth build-up, GNPAs at a decadal low, slippages at 16 per cent by FY23E/FY24E and valuations to 1.5 times Sep'23E book. Maintain BUY with an unchanged target price of Rs 673," said the brokerage.

Asutosh Mishra, Head Of Research, Institutional Equity, Ashika Group

"SBI has delivered positive surprise on loan growth and liability management fronts with 6% QoQ growth in book along with stable domestic NIM of 3.4%. We expect SBI's NIMs to improve further, as 74% of its loan book is linked to the variable rate, improvement in loan-to-deposit ratio and relatively lower proportion of term deposit re-pricing.

About 41% of its loan book is linked to MCLR (raised by 10bps post Mar'22), 23% is linked to EBLR/REPO rate (raised by 40bps post Mar'22) and 11% is linked to T-bill (raised by 100-110bps post Mar'22). Thus, we expect SBI's earnings to clock over 21% CAGR through FY22-25E, while RoE is seen in the range of 15-17%.

Moreover, strong performance of financial subsidiaries makes it one of the best bets in banking space. We maintain BUY on SBI with a Target Price of Rs 630, valuing the parent company at 1.7x rolling 1-Yr Fwd adj. BV, which implies a standalone value of Rs 460 and R s1 70 as the value of listed associates/other subsidiaries (net of 15% holdco discount)."