Why are SBI shares falling post Q1 results? Should you buy, hold or sell this PSU bank stock?

State Bank of India Ltd (SBI) June quarter results failed to meet analyst estimates, as net interest income (NII) fell sequentially and NIM contracted more-than-expected in the seasonally weak quarter, even as treasury income and lower opex ensured the largest state run lender had a beat on profitability. Analysts largely have target prices in the range of Rs 670-710 for the PSU bank.  

Nuvama Institutional Equities has retained its ‘Buy’ rating on the stock but highlight that NIM and loan growth remain key monitorables. Even after the margin miss, SBI has delivered core RoA of 1.05 per cent, which is positive, the brokerage said while suggesting a target of Rs 705 for the stock.

"We believe delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters driving moderate credit costs will drive incremental stock returns for SBI," said JM Financial which has a target of Rs 710 on the stock.

While the current CET1 level of 10.2 per cent could be desirably higher, strong internal accruals and potential stake sale in subsidiaries SBI Funds and SBI General  Insurance may unlock value for shareholders, it said adding that the capital raise at prevailing valuations will be book value-accretive and, thus, the brokerage is not overly concerned.

Phillip Capital, which has a target of Rs 670 on the stock, said sustainability in credit growth and stable NIM would drive core earnings for SBI going ahead.

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Credit cost for SBI, it said, may remain low at 0.5 per cent in the next few years, translating into stable earnings growth of 15 per cent in Fy24 and 11 per cent in FY25. This brokerage, however has cut its target price to Rs 670 from Rs 730 earlier.

SBI shares are down 8 per cent in last five sessions. They stood at Rs 568 level on Monday morning.

Motilal Oswal Securities said SBI delivered a mixed quarter with NII missing estimates, led by margin contraction, while higher treasury income drove earnings beat. Business growth remains modest in a seasonally weak quarter and the bank expects to gain healthy traction in the coming quarter, it said.

"A higher mix of floating loans (MCLR), which could benefit further from re-pricing will continue to support the NII and overall earnings even as the deposit cost could increase. Asset quality was stable, despite higher slippages, due to Q1 being a seasonally weak quarter, while restructured book stood

under control at 0.7 per cent. We estimate SBI to deliver FY25 RoA of 1 per cent and FY25 RoE of 17.8 per cent. We reiterate our BUY rating with an unchanged TP of Rs 700,” it said.

InCred Equities said while it does remain concern over margin profile in coming quarters, growth volatility due to corporate slowdown is likely to normalize in coming quarters.

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