Why Motilal Oswal is bullish on SBI shares, sees upto 50% upside
SBI appears well positioned to report strong uptick in earnings, led by moderation in credit cost from FY22, the brokerage said
India's largest lender State Bank of India (SBI) shares have rallied more than 100% in one year, whereas, have surged over 48% this year (year-to-date). Brokerage firm Motilal Oswal sees further upside on SBI stock as it sees SBI well positioned to report strong uptick in earnings, led by moderation in credit cost from FY22.
"SBI has demonstrated a strong improvement in asset quality, with gross non-performing assets (GNPAs) declining by 43% over the past three years, while PCR (provision coverage ratio) increased to 68% currently from 40% four years back. Fresh slippages moderated sharply to 1.2% in FY21, lower as compared to many of its private peers," it said in a note on Friday.
It expects recovery trends to continue (SBI expects recovery of over INR100b over FY22) as the IBC process gathers pace after a long pause due to the COVID-19 outbreak. There are few other big ticket accounts under resolution like DHFL, etc., which would support asset quality and an earnings recovery, it said. Motilal Oswal has a Buy rating on the stock with a target price of ₹600 per share (up to 50% upside).
The brokerage said that SBI has historically delivered over 15% RoE for 10 years, before the worst phase of the corporate cycle hit earnings, to the point that the bank reported back-to-back losses in FY17/FY18. It reported a strong FY21/1QFY22 in a challenging environment. Deposit growth stood strong, led by healthy CASA trends, while loan growth is likely to recover gradually over FY22-23E.
"Asset quality outlook remains particularly encouraging. The management has improved PCR to ~68%. Continued recoveries would further support the earnings momentum," the note added. An expected uptick in core operating performance, would also further propel earnings growth.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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