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What should investors do with SBI post Q3 show: Buy, sell or hold?

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State Bank of India

State Bank of India (SBI) shares were locked in 10 percent upper circuit in early trade on February 5 with stock price touching 52-week high of Rs 390.60 after the company announced its December quarter numbers.

The country’s largest lender on February 4 reported a 6.9 percent year-on-year decline in standalone profit at Rs 5,196.22 crore for the quarter ended December 2020, dented by higher provisions and slower NII growth.

Net interest income, the difference between interest earned and interest expended, grew by 3.7 percent year-on-year to Rs 28,819.94 crore in Q3FY21, meeting analysts’ estimates. NII in Q3FY20 inflated by recovery of Essar Steel account.

Total deposits grew at 13.64 percent YoY, out of which current account deposit grew by 11.33 percent YoY, while saving bank deposits rose by 15.99 percent YoY.

The net interest margin remained stable at 3.12 percent sequentially, but contracted 21 bps year-on-year.

Here is what brokerages have to say about the stock and the company after the Q3 numbers:

ICICI direct:

Overall stress being contained at 2.5% of loans as indicated earlier provides comfort reassuring investor confidence in SBI. Covid provisions at Rs 12,976 crore may be raised further in Q4FY21. With retail customers comprising government employees/salaried, the portfolio in this segment appears more resilient in these challenging times. Budget’s growth push provides visibility on capex and thereby credit growth pickup.

Revise our rating from HOLD to BUY with a revised target price of Rs 410 (earlier Rs 290), valuing the stock at ~1x FY23E ABV for standalone bank and subsidiaries valued at Rs 132 post holding company discount.

Motilal Oswal

SBI reported robust operating performance in a challenging environment. Loan growth is showing healthy recovery in retail portfolio, with disbursements in many business segments surpassing pre-COVID levels. Deposit growth stood strong, while margin remains broadly stable.

Asset quality outlook remains encouraging, with controlled slippages, low restructuring levels, and CE at 96.5% (in line with large peers). The bank is well on track to keep credit cost under control, while recoveries from resolution of large accounts can further support earnings. We maintain our FY22E/FY23E estimates and project RoA/RoE of 0.8%/14.5% by FY23E. Maintain Buy with a target price of Rs 475/share (1.2x Sep’22E ABV+INR155/share for subsidiaries).

Sharekhan

SBI has been a consistent performer, and is now gaining market share as well, now with benefit of a clean books at FY22E. Given its stronger deposit franchise, downside support from subsidiaries, and low risk of dilution (as compared to PSU bank peers), we believe that there are several factors to aid to re-rating of the stock.

We believe that the bank has less residual stress from the legacy book; and considering the 9M FY2021 perfromance so far, we believe SBI is likely to undershoot its credit cost guidance for FY2021E. We have revised our estimates and target multiples considering the improved outlook. We maintain a Buy rating on the stock with a revised SOTP-based price target of Rs 460.

LKP Research

We expect the bank to post a ROA/ROE of 0.5%/9.1% by FY22E led by healthy balance sheet growth along with higher PCR and stable asset quality. We rerate the stock with strong BUY and increased target price of Rs 422 (potential upside of 19%). We value the standalone bank with PBV of 1.2xFY22E Adj. BVPS of Rs 258 and value of subsidiaries per share of Rs 112.

At 09:20 hrs State Bank of India was quoting at Rs 390.60, up Rs 35.50, or 10.00 percent on the BSE.

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