SBI rallies 3%, hits all-time high on positive medium-term outlook

Shares of State Bank of India (SBI) hit a record high of Rs 670, gaining 3 per cent on the BSE in Wednesday's intraday trade, amid heavy volumes. In the past two trading days, the stock of the largest state-owned lender has rallied 4 per cent on the back of strong growth outlook over the medium-term. The stock price of SBI surpassed its previous high of Rs 660.40 touched on December 20, 2023.

As many as 10.26 million equity shares of SBI changed hands cumulatively on the NSE and BSE in the first 32 minutes of trade.

Among PSU banks, SBI has a healthy provision coverage ratio (PCR), adequate capitalisation, a strong liability franchise, and an improving asset quality outlook, making it the best play of the resilient Indian economy, according to analysts. Healthy business growth, along with stable margins and asset quality, is likely to boost profitability, they said.

In the October-December quarter (Q3FY24), SBI reported 35.5 per cent year-on-year (Y-o-Y) decline in net profit at Rs 9,164 crore, due to Rs 7,100 crore provisions for pension liabilities. The bank had posted a net profit of Rs 14,205 crore in the same period of the previous year (Q3FY23).

Dinesh Khara, chairman, SBI said the one- time provisions (pension of Rs 5,400 crore, dearness allowance of Rs 1,700 crore) impacted the profitability in the third quarter. Bank expects to plough-back Rs 40,000 crore in profits in FY24.

SBI's Net Interest Income (NII) expanded by 4.59 per cent to Rs 39,816 crore in Q3FY24, compared to Rs 38,069 crore in the same quarter a year ago.

Net interest margin (NIM) declined to 3.34 per cent in Q3FY24, compared to 3.69 per cent in Q3FY23. The management said SBI is guiding NIM to be around three basis points plusminus around current NIM (3.34 per cent per cent).

Asset quality continued to improve in Q3FY24. The bank's Gross Non-Performing Asset (GNPA) ratio was 2.42 per cent at the end of December, improved by 72 basis points Y-o-Y. The net NPA ratio was at 0.64 per cent, improved by 13 basis points Y-o-Y.

With stable asset quality, analysts at Axis Securities believe, credit costs would remain under control, thereby aiding the bank to deliver sustainable return on asset (ROA). Thus, despite elevated opex and provision on wage revision, the brokerage firm believes, improvement in asset quality would support the bank's profitability in FY24.

The management anticipates lower wage provisions at Rs 5,400 crore in Q4. Consequently, we expect improvement in operating profitability in FY25, Motilal Oswal Financial Services (MOFSL) said.

The brokerage firm has maintained a 'buy' rating on SBI with a target price of Rs 800 per share. The bank has various levers such as credito-to-deposit (CD) ratio and MCLR repricing to keep margins stable. Business growth remains robust, with signs of a recovery in the corporate segment, MOFSL said in the result update.

Asset quality remains healthy as the GNPA ratio improved further and the restructured book is well-managed at 0.5 per cent of advances, while the SMA pool stands at 12bp of loans. The brokerage firm estimates SBI to deliver RoA/RoE of 1.1 per cent/19.6 per cent in FY25.