SBI rallies 9% in 2 days post Q4 results; brokerages bullish on stock

Shares of State Bank of India (SBI) were up 4.4 per cent at Rs 418.90 on the BSE in intra-day trade on Monday, having rallied 9 per cent in the past two trading days, after the bank on Friday reported a strong performance on the asset quality front wherein slippages and restructuring were within guidance while sufficient provisioning buffer also provided comfort.

The stock of the state-owned lender was trading close to its record high of Rs 426.45 touched on February 18, 2021. Most of the brokerage houses are bullish on the stock after SBI's healthy performance.

For the January-March 2021 quarter (Q4FY21), SBI performed resiliently on the asset quality front and overall stress was contained within guidance. The gross non-performing assets (GNPA) ratio was down around 45 basis points (bps) quarter-on-quarter (QoQ) to 4.98 per cent from 5.44 per cent proforma while the net NPA ratio declined 31 bps QoQ to 1.5 per cent as against 1.8 per cent proforma. Total slippages and restructuring for FY21 were at Rs 46,416 crore within the guidance of Rs 60,000 crore.

“SBI has surprised positively on the asset quality front while it also has walked the talk and contained stress within guidance. We believe the overall outlook has improved with many positive levers like the decline in credit cost, improvement in credit deposit ratio, better yields due to fewer reversals, and better margins, which could lift the bank’s operational performance. We expect RoA of 0.6 per cent and RoE of 10 per cent by FY22E with scope to improve gradually,” ICICI Securities said in the results update.

Meanwhile, analysts at JP Morgan said, “SBI delivered an asset quality beat with full-year FY21 slippage plus restructuring print at 2 per cent (Rs 464 billion), 22 per cent lower versus guidance (2.6 per cent, Rs 600 billion). Q4FY21 proforma slippage print was just 1 per cent and full-year credit cost has printed at 1.12 per cent.

Notably, SBI’s F21 asset quality print is even better compared with large private banks, thanks to lower stress formation in the corporate sector and a low-risk retail book anchored around home loans and salaried employees.” The global brokerage has an ‘overweight’ rating on the stock.

The bank’s net NPA at 1.5 per cent is now at a 13-year low. With corporate stress stabilised (F21 slippages 0.9 per cent), analysts at the foreign brokerage believe the possibility of large shocks to the bank’s asset quality is limited though there could be some impact from SME book (10 per cent of advances) amid the second Covid wave. SBI did not give an outlook on credit cost guidance for next year given an evolving situation on Covid-19. "We expect the bank’s ROA to reflate back to the historical average of 0.8 per cent with ROEs of 13 per cent allowing a reflation back to 1-1.2x P/B range for the parent bank. However, outlook on credit growth (F21 4.8 per cent) remains hazy and hence can be an upside cap on re-rating," JP Morgan added.

“The impact of the second wave of Covid-19 is still uncertain. While management chose to not provide guidance on credit costs, we raise the loan credit cost by 10 bps to 93bps for FY22F but retain it below FY21 levels of 116bps. The comfort comes from the surprisingly lower NPL formation ratio (1.3 per cent), far better than peer private sector banks in a pandemic year. The lower slippages are also a function of muted loan growth in corporate and SME businesses, more so in the past three years and as its share in the loan mix fell from 53 per cent in FY16 to 43 per cent in FY21,” analysts at Nomura said.