SBI Q3 Results Review: Margin Expansion, Loan Growth Drive Earnings, Say Analysts

State Bank of India's third-quarter net profit rose sharply due to an expansion in interest margins, a rise in other income, and healthy credit growth, according to analysts.

India's largest public sector bank's net profit jumped 68.5% year-on-year to Rs 14,205 crore, according to its exchange filings. Analysts polled by Bloomberg estimated a net profit of Rs 13,295 crore for the quarter.

Net interest income, or core income, for the bank, rose 24% year-on-year to Rs 38,068 crore. Other income increased 34% from a year ago to Rs 11,468 crore.

State Bank of India also improved its asset quality position over the quarter, with its gross non-performing asset ratio falling 38 basis points sequentially to 3.14% as of Dec. 31. The net NPA ratio remained flat at 0.77% at the end of the third quarter.

The bank's deposit book also rose 9.5% year-on-year to Rs 42.13 lakh crore. Low-cost current account savings account deposits were at 44.48% of total deposits, down 126 basis points from a year ago. The lender's gross advances rose 17.6% year-on-year to Rs 31.33 lakh crore in the third quarter.

A higher mix of floating-rate loans in its book will continue to bolster SBI's interest income even as price competition for deposits heats up going forward, analysts said.

The lender's exposure to the Adani Group stands at about Rs 27,000 crore, or 0.8% of the loan book, as of Dec. 31, SBI Chairman Dinesh Khara told reporters on Feb. 3.

Shares of the PSU bank gained 1.05% to Rs 550.15 apiece as of 9:18 a.m., while the benchmark Nifty 50 eased 0.35%. 

Of the 34 analysts tracking the stock, 33 maintained 'buy' and one analyst suggested ' hold', according to Bloomberg. The return potential is 40% over the next 12 months.

Here’s what brokerages have to say about SBI’s Q3 FY23 earnings.

Motilal Oswal

• Higher fix of floating loans will benefit from loan re-pricing.

• Bank expects net interest margins to remain stable around current levels.

• Margin expansion, treasury gains, and healthy loan growth led the quarter's earnings for SBI.

• Maintain a 'buy' rating with a target price of Rs 725 per share

Systematix Institutional Equities

• Expect the margin expansion story to sustain.

• Change in credit composition in favour of retail and MSME segment could also have aided margins.

• SBI could be facing issues in liquidating its hold-to-maturity investment portfolios.

• Upgrade rating to 'buy' with a target price of Rs 645 per share
  

ICICI Direct

• Strong performance warrants a long overdue re-rating which should see positive momentum.

• Slower growth in deposits and higher slippages remain key risk factors.

• The bank maintains adequate provisions buffer to aid healthy earnings.

• Maintain 'buy' rating with a target price of Rs 700 per share

Nirmal Bang

• Corporate segment saw a sizeable NPA reduction sequentially in the third quarter to 4.37% from 5.32% in Q2.

• Management indicated that lower deposit growth is not a cause for concern.

• Maintain 'buy' rating with a target price of Rs 667 per share