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SBI Q1 Review: Growth Trajectory Intact Despite Earnings Miss, Analysts Say

Negative surprises in Q1 aside, SBI is poised for growth, say analysts.

<div class="paragraphs"><p>Namesign and logo of State Bank of India SBI. (Source: BQ Prime)  </p></div>
Namesign and logo of State Bank of India SBI. (Source: BQ Prime)

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%.

SBI Q1 Review: Growth Trajectory Intact Despite Earnings Miss, Analysts Say
Opinion
SBI Q1 Results: Net Profit Down 7% On Lower Other Income, Higher Expenses

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.