SBI shares surge 7% after healthy September quarter numbers

Shares of State Bank of India (SBI) rallied 7 per cent to Rs 220.95 on the BSE in the early morning trade as the analysts believe earnings normalisation cycle for the state-owned lender has begun as the uncertainty brought about by the pandemic is receding significantly.

"On the asset quality front, collection efficiency (CE) improved sharply to 97 per cent, in line with large private peers. On the other hand, the bank expects a total asset quality impact of Rs 600 billion (2.6 per cent of net advances), including the restructuring of less than1 per cent. SBI has prudently improved provision coverage ratio (PCR) over the last few years, with corporate PCR at 88 per cent. It awaits healthy write-backs from the resolution of stressed assets," note analysts at Motilal Oswal Financial Services (MOFSL).

Meanwhile, SBI reported decent numbers for the July-September quarter (Q2FY21), with healthy 14 per cent year-on-year (YoY) growth in net interest income (NII) at Rs 28,182 crore, led by margin expansion, and retail credit growth recovering to pre-Covid levels. The bank reported a 52 per cent YoY growth in profit after tax (PAT) at Rs 4,574 crore on the back of a 25 per cent YoY decline in provisions. On the asset quality front, potential slippages (without the Supreme Court order) increased to Rs 171 billion, led by the Agri and SME segments.

“SBI is the best to play the improvement in corporate NPL cycle with an impact of Covid likely to be relatively lower. The bank has a strong liability franchise, healthy operating profits, and a leading market share in most of its subsidiaries. Valuations are attractive to retain our positive view,” Kotak Securities said in a result update.

SBI’s lack of recovery in market multiples, unlike what we have seen with private banks that have had similar challenges on the corporate side, is an area of disappointment to us. The management has given a solid positive outlook but we see investors wanting to wait for a few more quarters till they establish comfort on this commentary, the brokerage firm said.

Analysts at Jefferies believe that with a broader recovery in the Indian economy and the ability of most lenders in recovering dues, the overhang of "public service" on SBI should recede. "This, coupled with the earnings upgrade, drives the upgrade in our rating from Hold to Buy with a price target of Rs 270 (from Rs 215 earlier) based on SOTP that includes the value of the bank at 0.7x Sep-22 adjusted PB," it said.

At 09:48 am, SBI was trading 5 per cent higher at Rs 218 on the BSE, as compared to a 1.25 per cent rise in the S&P BSE Sensex. The trading volumes on the counter more-than-doubled with a combined around 64 million equity shares changing hands on the NSE and BSE.