Analysts dissect SBI target price on missed estimates

Expect stock price performance to be driven by credit growth pick-up

Most brokerages have cut their one-year target price on State Bank of India’s (SBI’S) stock after India’s largest stateowned banking entity posted subpar results for the Januarymarch quarter (fourth quarter, or Q4) of 2021-22 (FY22).

Shares of the lender had dropped 5 per cent on Friday, after the bank announced its results, but bounced back 2.3 per cent to ~455 per share on Monday, against a 0.34 per cent rise in the benchmark S&P BSE Sensex. Analysts expect incremental stock price performance to be driven by pickup in credit growth, and steady improvement in asset quality and return profile as the stock is trading at its long-term mean valuation of 1.0x 2023-24 estimates (FY24E) book value per share (core bank).

Nomura has cut the lender’s target, from ~650 to ~610, as it reported flat net interest margin (NIM) of 3.15 per cent. While loan growth of 11.6 per cent onyear surprised positively, higher expenses, tepid pre-provision profit, and slight uptick in net non-performing loans (net of recoveries) worried the brokerage. It has cut its 202223 (FY23)/FY24 earnings per share (EPS) estimate by 6 per cent/5 per cent, respectively, to factor in mark-to-market on the available-for-sale book, offset marginally by higher NIM and lower provision.

UBS, too, has cut its EPS estimates on the stock for FY23/24 by 3.3 per cent/4 per cent, but has maintained its target price at ~600. It believes the bank is well-placed cyclically due to stable asset quality, improving return on assets and return on equity (ROE) profile, and inexpensive valuations (0.8x FY23 price-to-book value). JM Financial has trimmed the lender’s target price to ~590, from ~610, while Emkay Global has cut its target from ~680 to ~640, as the bank took a hit on investments (~2,060 crore) on security receipts, along with lower core banking fees.

Kotak Institutional Equities, meanwhile, maintains a ‘buy’ rating with an unchanged fair value of ~700, valuing the stock at 1.3x (adjusted) book and 9x FY24E EPS for ROE in the range of 15 per cent.

Motilal Oswal Financial Services has cut its target price to ~600, as operating expenses grew 1 per cent YOY and 12 per cent quarter-on-quarter, resulting in an increase in the cost-to-income ratio to 54.2 per cent. Pre-provision operating profit also came in 7 per cent below estimates at ~19,720 crore. Lastly, ICICI Securities has maintained its target of ~673 on the stock as improved visibility on asset quality with ‘new normal’ credit cost of 1 per cent, credit growth of 13 per cent/15 per cent for FY23E/FY24E, asset resolution, and stable NIMS may drive ROE to over 16 per cent by FY23E/FY24E.