SBI Q4 Review: On Track To Reach Return-On-Equity Goals, Brokerages Say
SBI, while announcing its Q4 results last week, said it would achieve its target of 15% RoE soon as that's already at 13.9%.
India’s largest lender is on track to achieve its return-on-equity goals by March 2024, driven by aggressive growth targets and better provisions, according to analysts.
State Bank of India, while announcing its fourth-quarter results last week, said it would achieve its target of 15% return-on-equity soon, as it has already reached 13.9% as of March 2022.
The lender reported net profit growth of 41% over the year earlier in the quarter ended March, meeting the Bloomberg consensus analyst estimates. The net interest income, or core income, rose 15.3% year-on-year, while other income fell 27%. The bank’s net interest margin for its domestic business stood at 3.40%, up 29 basis points over a year ago.
Its asset quality improved sequentially. SBI holds a provision coverage ratio of 75% and carries higher provisions against restructured loans than what is required by the regulator.
Total advances rose 10.27% year-on-year, driven by 15% growth in retail assets and 11% rise in corporate loans. Retail loans crossed Rs 10 lakh crore for the first time.
All the 50 analysts tracking SBI suggest a ‘buy’. The average of the 12-month consensus price target implies an upside of 43%. Systematix Group has upgraded the stock from ‘hold’ after its Q4 results.
Shares of the bank had closed nearly 4% lower on Friday.
Here’s what analysts have to say about SBI’s Q4 FY22 results.
Motilal Oswal
Profit growth aided by steady NII growth and controlled provisions, even as operational expenses stood elevated, resulting in a miss in operating performance.
The management expects the momentum to remain healthy as utilisation levels improve, while retail growth is likely to remain steady.
A higher mix of floating loans and CASA mix will support margin in a rising interest rate environment.
Estimates credit cost to moderate to 0.9%, enabling 28% earnings compounded annual growth rate, over FY22-24.
Expects SBI to deliver a return on assets of 0.9% and return-on-equity of 16.7% in FY24.
Retains ‘buy’ with a target price of Rs 600 apiece, which is 35% higher than current market price.
Prabhudas Liladher
Profit mainly driven by stronger pre-provisioning operating profit that was a function of healthier NII and better other income.
Balance sheet is stronger than ever with a high provision coverage at 75%, minimal stress and adequate coverage on restructured pool.
Credit is guided to grow by 12% year-on-year in FY23 although, NIM would keenly watched.
With interest rate cycle going up and 74% being floating rate loan book, NIM should improve.
With improvement in penetration levels in YONO (currently at 27%), growth is expected to improve.
ROE could scale up to 15% in FY24 and SBI warrants a 1.4x multiple on core adjusted book value.
Retain ‘buy’ at a target price of Rs 600 apiece against Rs 610 before.
Systematix Institutional Equities
NII and core fee income were marginally below estimates.
Lower recoveries on written-off pools further dragged non-interest income.
Management noted that the increase in forex income is sustainable and expects core fee income to pick up in FY23 driven through offtake in corporate and retail credit.
SBI must strengthen current account and savings account deposit franchise and gain incremental market share.
Bank needs to reduce overdependence on Xpress retail credit.
Expects SBI to report RoA of 94 bps/97 bps and RoE of 17.7%/17.4% in FY23/FY24, respectively.
Retain ‘buy’ with a target price of Rs 546 compared with Rs 531 before.