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Business News/ Markets / Stock Markets/  SBI stock climbs 33% in less than 3 months, Motilal Oswal sees further 15% upside; here's why
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SBI stock climbs 33% in less than 3 months, Motilal Oswal sees further 15% upside; here's why

Shares of State Bank of India (SBI) have surged nearly 17% this month, marking its largest monthly gain since January 2022. The stock has risen approximately 33% since December, demonstrating robust growth in less than three months.

Motilal Oswal expects SBI to achieve 13–14% loan growth over FY23–26E, aided by an improved disbursement rate for sanctioned loans and a recovery in corporate demand. (REUTERS)Premium
Motilal Oswal expects SBI to achieve 13–14% loan growth over FY23–26E, aided by an improved disbursement rate for sanctioned loans and a recovery in corporate demand. (REUTERS)

Shares of State Bank of India (SBI), the nation's largest public sector bank, gained sharply in February, even as the bank reported a weak set of numbers in Q3, affected by higher wage provisions and soft other income.

The stock has soared nearly 17% this month so far, marking its largest monthly gain since January 2022. Since December, it has risen approximately 33%, demonstrating robust growth in less than three months.

Additionally, SBI recently surpassed a market capitalization of 6 lakh crore, becoming the second PSU company, after Life Insurance Corporation, to achieve this milestone, as its upward trajectory continues.

Also Read: SBI emerges as second PSU firm to surpass 6 lakh crore market cap

Going forward, the stock is likely to maintain its upward trajectory, according to the projections made by the domestic brokerage firm Motilal Oswal. In its latest report, the brokerage highlights State Bank of India's (SBI) consistent strong performance for the past few years, achieving new profitability milestones such as surpassing 500 billion in PAT in FY23.

It says that the bank has also made efforts to significantly strengthen its balance sheet and has a healthy provisioning coverage on its corporate book of 92%.

Motilal Oswal expects SBI to achieve 13–14% loan growth over FY23–26E, aided by an improved disbursement rate for sanctioned loans and a recovery in corporate demand. With a strong liability profile boasting one of the lowest domestic CD ratios at 66%, it believes the bank is poised for healthy balance sheet growth.

Also Read: Profit of Indian public sector banks surged by 40% in first nine months of FY24; check top performing lenders

Asset quality metrics have been healthy owing to strong underwriting, improved financial position of borrowers, and continued deleveraging by the corporate sector. SBIN has thus seen a consistent decline in its NNPA ratio to 0.6%, while its coverage ratio is healthy at 74% (92% including TWOs). 

Following residual wage provisioning, Motilal projects improved cost ratios in FY25, enhancing profitability and offsetting margin and credit cost normalisation impacts. 

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Therefore, the brokerage estimates a 22% CAGR in earnings over FY24-26 after a blip in 2HFY24, resulting in FY26E RoA and RoE of 1.2%/19.1%. The stock remains one of the brokerage's top picks in the sector, and it reiterated its 'BUY' rating with a target price of 860 apiece. This target price indicates an upside potential of 15% from the stock's current trading price of 749 apiece. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 15 Feb 2024, 11:15 AM IST
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