SBI inches towards record high ahead of Q1 results; stock up 3%

Shares of State Bank India (SBI) moved higher by 3 per cent to Rs 438.60 on the BSE in intra-day trade on Thursday on the back of heavy volumes. The stock inched towards its record high ahead of its April-June quarter (Q1FY22) results next week. Analysts expect SBI to report a healthy performance, supported by recoveries and modest opex.

The stock of the state-owned lender had hit an all-time high of Rs 442 on June 3, 2021, after it reported a strong set of numbers for the March 2021 (Q4FY21) quarter. Since then, it has underperformed the market by falling 3.4 per cent, as compared to a 0.66 per cent rise in the S&P BSE Sensex. Trading volumes on the counter jumped 1.5 times, with a combined 18.36 million equity shares having changed hands on the NSE and BSE till 01:40 pm.

The board of directors of SBI is scheduled to meet on Wednesday, August 4, 2021, to consider and approve financial results for the quarter ended June 30, 2021 (Q1FY22).

The brokerages find SBI better placed (with respect to asset quality, capitalisation, and underwriting strength, among others) compared to peers, with unique business strengths (being the largest bank in India). Sharekhan believes SBI presents a value opportunity as it benefits from turning of the benign corporate credit cycle. The brokerage expects it to gain market share, improve ROAs of ~80 bps. In addition, SBI’s stronger deposit franchise, downside support from subsidiaries, and low risk of dilution (as compared to PSU bank peers) provide further support to valuations, the brokerage firm said.

“In Q1FY22, loan growth of 5.5 per cent year-on-year (YoY) to Rs 25,140 billion, and deposit growth of 11 per cent YoY is expected. Net interest income (NII) may grow 4 per cent YoY to Rs 276 billion, led by lower interest reversals quarter-on-quarter (QoQ). Non-interest income is seen at Rs 99 billion. With the cost of deposits stabilising, net interest margins (NIMs) are seen to be stable. We factor in moderate slippages due to partial lockdowns and overall provisions at Rs 8,200 crore vs. Rs 11,000 crore QoQ. Hence, profit after tax (PAT) is likely to grow to Rs 5,589 crore, up 33 per cent YoY. Subsidiaries' performance is expected to be strong across the board,” ICICI Securities said in result preview.

Another brokerage Motilal Oswal Financial Services said SBI appears well-positioned to post a strong earnings uptick, led by moderation in credit cost as well as supported by recoveries. Over the years, SBI has strengthened its balance sheet and increased its PCR (including TWO) to 88 per cent. It further holds PCR of around 85 per cent on corporate non-performing assets (NPAs). "The initial impact of COVID on asset quality was limited, with total slippages + restructuring lower than the guided levels. It reported moderation in its GNPA/NNPA ratio. However, we remain watchful of the impact of the second wave, which could keep slippage/credit costs elevated. We estimate credit cost of 1.6 per cent for FY22,” Motilal Oswal Financial Services said in a result preview.

Nomura, meanwhile, expects SBI’s loan book to remain stable sequentially at 6.4 per cent and 7YoY. We are building in 11 bps of margin expansion leading to NII growth of 11.9 per cent YoY, the brokerage said. It expects PPOP (pre-provision operating profit) to decline by 17 per cent QoQ/ 9 per cent YoY. We are building in around 100bps provisioning cost; the management commentary around collections, restructuring pool, behaviour of ECLGS (Emergency Credit Line Guarantee Scheme) loans and credit demand will be key monitorables, the brokerage firm said.