Many brokerages have revised their target price on SBI shares higher after Q4 earnings
SBI's core performance was better than expectations in Q4: Analysts
Shares of State Bank of India or SBI were trading higher today, extending gains to the third day. SBI shares were trading 1% higher at ₹311, outperforming flat Mumbai markets. The Street’s positive response has been fueled by the state-run bank’s fourth quarter earnings. SBI on Friday posted a net profit of ₹838.40 crore, which was much below the ₹4,840 crore estimates of the Street. In the corresponding quarter last year, the bank had posted losses of ₹7,718.17 crore. What hurt SBI’s net in the March quarter was hefty provisions to pare bad debt.
Provisions against bad loans surged 24% to ₹17,335 crore in March quarter while provision coverage ratio, the amount set aside to cover non-performing assets, stood at 78.73%, compared with 66% during the same quarter last year. The lender said that it has made 90% provisions against all National Company Law Tribunal, or NCLT, cases to avoid any future shocks.
SBI’s asset quality improved during the quarter with additions of bad loans falling sharply. Net NPAs were at 3.01% in the March quarter against 3.95% in the previous quarter, and 5.73% in the corresponding quarter of last year.
Operationally, it was a good quarter for SBI with revenue retail banking business growing 15.3% to ₹33,662 crore.
What brokerages say on SBI shares
Many brokerages remain positive on SBI shares. Edelweiss has maintained “buy" on the stock citing valuation comfort, with a target price of ₹371. “SBI turned in an impressive Q4FY19 performance with a sustained core and strengthening balance sheet. PAT undershot primarily due to increased provisioning pertaining to NCLT accounts and rise in coverage. We believe SBI is better positioned among peers – CET1 (Common Equity Tier 1) at 9.62%, NNPL (net non-performing loan) 3% and CASA 45%-plus – and reiterate it as our top pick among PSU banks as a proxy for corporate recovery," Edelweiss said in a note.
Another brokerage Prabhudas Lilladher has revised target price on SBI shares higher to ₹427, from ₹361 while maintaining “buy". “SBI's core performance was better off than expectations. Also, asset quality improved on back of lower slippages. Going ahead, higher recoveries and lower slippages should improve asset quality, while better provision coverage ratio should translate to normalization in credit cost, helping improve return ratios," the brokerage said in a note.
JM Financial has also maintained “Buy" on SBI shares with target price of ₹385, with subsidiaries contributing ₹81 to its target price. “SBI’s credit cost remained high in the quarter (3.5%), although gross slippages continued to remain benign. Management indicated that credit cost was high despite low slippages because of provisioning in the quarter was towards three large NCLT accounts," said the brokerage, which expects the lenders credit costs to fall going forward on large write-backs over the next two years.