SBI share price gains after Q2 results beat estimates; Should you buy, sell or hold the stock?

India’s largest commercial bank, SBI reported an 8% year-on-year jump in its net profit for the second quarter of FY24 at ₹14,330 crore from ₹13,264.5 crore in the corresponding quarter of last fiscal.

SBI’s net interest income (NII) in Q2FY24 rose 12.3% to ₹39,500 crore from ₹35,183.4 crore in the year-ago quarter. However, SBI’s domestic net interest margin (NIM) during the July-September 2023 quarter decreased by 12 bps YoY to 3.43%. 

Read here: SBI Q2 Results Highlights: Net profit up 8% at ₹14,330 crore; NII grows 12.3% YoY; beats estimates

The bank’s asset quality improved, while credit growth was strong at 12.39% YoY.

Analysts remain bullish on SBI after it reported another strong quarter with strong asset quality and healthy NIMs as they believe the bank is well positioned to sustain the growth momentum.

Here’s what brokerages said on SBI Q2 results and SBI shares:

SBI delivered a steady quarter, with a beat on profitability aided by lower provisions and steady revenue growth. Opex was high due to high wage provisions, effective November 2022, hurting PPoP growth. Margins declined 4 bps QoQ and the management expects a further 3-5 bps compression, though the bank has levers in place (CD ratio, MCLR repricing) to maintain stable margins, Motilal Oswal Financial Services said.

The brokerage firm estimates SBI to deliver FY25E RoA and RoE of 1.1% and 18.3%. It reiterated its ‘Buy’ rating on the stock with an unchanged target price of ₹700 per share.

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Nuvama Institutional Equities

SBI announced a healthy performance with in-line PAT that grew 8% YoY/fell 15% QoQ. NIM declined 4bps QoQ while loan growth was better-than-expected at 3% QoQ/12% YoY leading to NII growth of 1.5% QoQ, marginally above our estimate. Reversal of standard provisions and higher trading gains partly offset higher opex, said the brokerage house.

Nuvama Institutional Equities retained its ‘Buy’ rating on the stock with a target price of ₹705 per share. With NIM near-bottom and RoA at 1%, risk-reward is attractive, it added.

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Antique Stock Broking

SBI’s overall performance was healthy and in-line, adjusting for a one-off increase in employee cost which was coupled with low credit cost. 

Antique Stock Broking believes SBI remains one of the key beneficiaries of the improved credit quality cycle and strong internal accruals (109 bps of RWA), excess liquidity (66% domestic loan to deposit ratio), best-in-class cost of deposits 4.7%, and low credit cost (22 bps in 2QFY24) would continue to support earnings.

It expects RoA of 1% and 0.9% and RoE of 19% and 16% over FY24–26E. The brokerage maintained a ‘Buy’ call on the stock and raised the target price to ₹725 per share from ₹700 earlier.

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Kotak Institutional Equities

Kotak Institutional Equities said that the bank was growing its loan book a lot more cautiously, which gave greater comfort. 

“The liability franchise remains impressive, which augurs well on credit costs. We feel valuations don’t reflect the strengths of this franchise. We should see the bank trading at higher levels as the quality of earnings would continue to surprise positively and could be longer than expected,” Kotak Institutional Equities said.

It maintained a “Buy” rating with an unchanged target price of ₹725 per share, valuing the bank at 1.3X (adjusted) book and 8X FY2025E EPS for RoEs of ~15%. It has maintained its estimates but believes that there is still scope for upgrades, especially on credit costs. 

JM Financial believes delivery of growth on guided lines, sustenance of NIMs near current levels and controlled asset quality parameters aiding controlled credit costs should lead to strong profitability going ahead. 

It built in RoA and RoE of 1.0% and 17.5% for FY25E. The brokerage maintained a ‘Buy’ call and a target price of 710 per share.

SBI share price has fallen over 2% in one month, while the stock is up nearly 1% in three months. SBI shares have fallen more than 5% year-to-date (YTD).

At 9:30 am, SBI shares were trading flat at ₹577.00 apiece on the BSE. 

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 06 Nov 2023, 09:31 AM IST