SBI shares down 7% year-to-date; Motilal Oswal sees 24% upside

SBI share price fell about a per cent in morning trade on BSE on Monday. It opened almost flat at ₹571.50 against the previous close of ₹571.30 and fell to the level of ₹566.15 as the trade progressed.

Shares of SBI have been lacklustre this year so far. Year to date (as of June 16 close), SBI stock is down 7 per cent while the BSE Bankex index is up nearly 2 per cent and the equity benchmark Sensex is up 4 per cent. SBI shares hit their 52-week high of ₹629.65 on December 15, 2022, and 52-week low of ₹430.80 on June 20, 2022.

As per Motilal Oswal, SBI’s FY23 annual report highlights that the bank is steadily strengthening its balance sheet and consistently delivering healthy RoE (return on equity) while maintaining its leadership position.

Motilal said SBI delivered a strong performance in FY23, propelled by steady business and revenue growth and controlled provisions. The brokerage firm expects the momentum to remain healthy as utilisation levels improve, while retail growth is likely to remain steady. Motilal believes a higher mix of floating loans and CASA (current account savings accounts) mix will support margins even as the cost of deposits picks up at a faster pace.

“Asset quality performance has been strong and the outlook remains healthy as the restructured book remains in control at 0.8 per cent and the SMA (special mention account) pool has declined further to 10 basis points of loans. We estimate the credit cost to remain in control at 0.5 per cent over FY23-25, enabling a 15 per cent earnings CAGR over FY23-25E. We estimate SBI to deliver sustainable RoA (return on assets) and RoE (return on equity) of nearly one per cent and 18 per cent over FY23-25 respectively.

Motilal observed that SBI made provisions of ₹19,000 crore toward employee and retirement-related expenses and spent ₹2,500 crore toward wage revision in FY23, which kept the overall staff expenses elevated.

“Excluding pension/gratuity provisions, staff expenses posted an 8 per cent CAGR over FY18-23. The C/I ratio (cost-to-income ratio), thus, was high at 54 per cent in FY23. With the headcount remaining under control (2,35,000 in FY23 versus 2,44,000 in FY22 and 2,80,000 in FY17), we expect overhead expenses to remain in check. We, thus, estimate the cost-to-income and cost-to-assets ratios to moderate to 51.6 per cent and 1.8 per cent, respectively, by FY25,” Motilal Oswal said.

Motilal Oswal believes SBI is well-positioned to benefit from the moderation in bond yields on its treasury portfolio as the rate environment has eased over the past few months.

“The 10-year G-Sec (Government Securities) has moderated to 7 per cent in the past 12 months from highs of 7.6 per cent. SBI booked minor treasury losses in FY23 as bond yields were high for most of the year; however, with an AFS (alternative financial services) mix of 37 per cent, the bank is well-positioned to improve its treasury performance in FY24. We, thus, estimate a 12 per cent CAGR in other income over FY23-25 (10 per cent decline in FY23),” Motilal Oswal said.

SBI reported a net profit of ₹16,694.5 crore for the quarter ended March 2023, up 83 per cent from ₹9,113.5 crore in the corresponding quarter last year. Its net interest income (NII) during Q4FY23 increased 29.5 per cent to ₹40,392 crore from ₹31,197 crore year-on-year (YoY). The bank’s domestic net interest margin (NIM) for Q4FY23 increased by 44 basis points YoY to 3.84 per cent. Operating profit during the quarter grew by 24.87 per cent YoY to ₹24,621 crore.

Read more: SBI Q4 results: Net profit jumps 83% YoY to ₹16,695 crore; NII up 29%; announces dividend of ₹11.3

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

Updated: 19 Jun 2023, 11:18 AM IST