State Bank of India's growth trajectory remains intact even as India's largest lender delivered some negative surprises in the first quarter, analysts said.
SBI reported a net profit of Rs 6,068 crore for the quarter ended June, down 6.7% year-on-year. That compares with the Rs 8,392-crore consensus estimate. The drop in profit was largely due to mark-to-market losses recorded during the quarter, as the bank had to provide against rising bond yields.
Net interest income improved 12.87% year-on-year to Rs 31,196 crore, while other income fell 80%. Its asset quality remained stable, with gross non-performing asset ratio at 3.91%. But quarterly additions to bad loans rose 180% quarter-on-quarter to Rs 10,115 crore.
Total domestic advances rose 13.66% to Rs 24.5 lakh crore, driven by an improvement in SBI's retail loan book. Total deposits were up 8.7% year-on-year at Rs 40.45 lakh crore.
Shares of SBI were trading 3% down as of 9:30 a.m. on Monday. Of the 50 analysts tracking the bank, 49 suggest a 'buy and one recommends a 'hold', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 24.6%.
Here's what analysts have to say about SBI's Q1 FY23 performance.
ICICI Securities
Q1 FY23 earnings were dragged by a treasury loss of Rs 6,550 crore, contraction in miscellaneous income and lower other interest income.
Operationally, too, net interest margin of decline 13 basis points quarter-on-quarter, flat NII, and slippages at 1.38% surprised negatively.
Expects net interest margin trajectory to improve with repricing of the lending book faster than deposits.
Credit growth of 13% and 15%, stable NIMs, operating profit growth of 16% and 19% and credit cost of 0.9%, for FY23 and FY24, respectively, will drive RoE to more than 16%.
Maintains 'buy' with a target price of Rs 673 apiece.
Motilal Oswal
Outlook on NII remains encouraging as the bank benefits from the re-pricing of its floating rate loan portfolio, amounting to 74% of total loans.
A higher-than-expected treasury loss resulted in a marginal cut to FY23 earnings estimate.
Expects SBI to report a strong earnings progression right from Q2 FY23, resulting in 29% earnings compounded annual growth rate over FY22-24.
Estimates a return on asset ratio of 0.9% and return on equity of 17% in FY24.
SBI remains a conviction 'buy' in the sector, with a target price of Rs 625 apiece.
Jefferies
Loan growth improved, but fall in NIM was a tad disappointing.
Current account savings account deposit growth of 7-10% over the last three quarters, needs to improve.
Special mention accounts doubled quarter-on-quarter but management clarified that a large part of this has been regularised.
Mark-to-market losses were a drag on profit but can settle now.
Lowers FY23 earnings estimate by 6%, due to treasury losses.
Sees 14% CAGR growth in loan book over FY23-25, but that may require a capital-raise as common equity tier-1 ratio is at 9.7%, compared with regulatory minimum of 8.6%.
Maintains 'buy' with a target price of Rs 630 a share.
CLSA
A sequential drop in NIMs was offset by lower operational expenditure and better fees.
Unlike private banks, operational expenditure can be a driver of earnings estimates for public sector banks over the next 12-18 months.
With accelerated rate hikes and sufficient liquidity cushion, expect NIMs to improve over FY23.
Bond losses were higher than expected and drive FY23 earnings estimate down by 4%. Credit costs continue to undershoot expectations.
With favourable rate cycle, see low risk to RoE of over 15%. Expects RoE of 15.5-16% over FY23-25.
Maintains 'buy' with a price target of Rs 660 apiece, driven by price targets of subsidiaries.
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